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The Equal Opportunity Rule in Transfer of Control: A Contractual Model

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  • Hubert De La Bruslerie

    ()
    (DRM - Dauphine Recherches en Management - CNRS : UMR7088 - Université Paris IX - Paris Dauphine)

Abstract

The equal opportunity rule is seen as protecting investors in the event of a transfer of control. This rule is analyzed in a setting of information asymmetry and future private benefits between the new controlling shareholders and the outside investors. Both parties need to design a new implicit contract to share the firm's ownership. Using a signaling model, we show that the new controlling shareholder issues signals to outside shareholders to deliver private information on the firm's future economic return and his private rate of appropriation. Ownership stake of the controlling shareholder and the premium embedded in the acquisition price are key parameters. In a controlling ownership system, the equal opportunity rule modifies the relative behaviors of controlling and outside shareholders. The quality of information deteriorates despite the fact that the discipline may be stronger.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number halshs-00636613.

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Date of creation: Dec 2010
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Publication status: Published - Presented, German Law and Economic Association, 2010, Wiesbaden, Germany
Handle: RePEc:hal:journl:halshs-00636613

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00636613
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Related research

Keywords: Equal opportunity rule; transfer of control; takeover; controlling shareholder; investors protection; private benefits;

References

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  1. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
  2. Patrick BOLTON & Ernst-Ludwig VON THADDEN, 1996. "Blocks, Liquidity, and Corporate Control," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9619, Université de Lausanne, Faculté des HEC, DEEP.
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  10. Koke, J. & Renneboog, L.D.R., 2003. "Do Corporate Control and Product Market Competition Lead to Stronger Productivity Growth? Evidence from Market-Oriented and Blockholder-Based Governance Regimes," Discussion Paper 2003-78, Tilburg University, Center for Economic Research.
  11. Mark Bagnoli, Barton L. Lipman, 1988. "Successful Takeovers without Exclusion," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 89-110.
  12. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring.
  13. Martin Holmén & Eugene Nivorozhkin, 2012. "Tender Offers versus Block Trades: Empirical Evidence," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 33(7-8), pages 511-529, October.
  14. Alain Schatt & Thierry Roy, 2004. "Etude des déterminants de la prime d’acquisition d’un bloc de contrôle:le cas français," Working Papers CREGO 1040602, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
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