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Organizational Form Changes: Increasing Stockholder Wealth or Serving Managerial Interests?

Author

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  • Aswath Damodaran
  • Kose John
  • Crocker H. Liu

Abstract

We study changes in organizational form in the real estate industry based on a sample of 128 changes announced during the period from January 1, 1966 through December 31, 1989. The rich variety of organizational forms of real estate firms with varying degrees of restrictiveness of the equity contract provides the setting for our study. We examine whether these changes are motivated primarily by the desire to increase stockholder wealth and improve financial health or by managerial self interests. By looking at the characteristics of firms moving from one organizational form to another, the reasons provided by managers at the time of the organizational change, the stock price reaction to the announcement of the changes are motivated primarily by stockholder wealth maximization. While managerial interests may also be served in the process, they do not appear to be at the expense of the stockholders.

Suggested Citation

  • Aswath Damodaran & Kose John & Crocker H. Liu, 1998. "Organizational Form Changes: Increasing Stockholder Wealth or Serving Managerial Interests?," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-023, New York University, Leonard N. Stern School of Business-.
    • Handle: RePEc:fth:nystfi:98-023
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