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Liquidity and Control : A Dynamic Theory of Corporate Ownership Structure

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Author Info
Patrick BOLTON
Ernst-Ludwig VON THADDEN

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Abstract

The paper develops a theory of ownership structure based on the notion that corporate control and secondary market liquidity are not perfectly compatible with each other. We analyse the tradeoff between these two objectives for two different ownership structures: the privately held firm, which is characterised by restricted trading opportunities for owners and non-anonymous trading, and the publicly traded firm where trading opportunities are unrestricted and trading is anonymous. We develop pricing formulas for each structure, compare these with each other, and derive predictions for optimal ownership design, depending on the institutional structure of the capital market.

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Publisher Info
Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9712.

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Length: 43 pages
Date of creation: Jul 1997
Date of revision:
Publication status: Published in Journal of Institutional and Theoretical Economics, vol. 154, No 1, March 199
Handle: RePEc:lau:crdeep:9712

Contact details of provider:
Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.64
Fax: ++41 21 692.33.65
Web page: http://www.hec.unil.ch/deep/publications-english/e-cahiers.htm

For technical questions regarding this item, or to correct its listing, contact: (Claudine Delapierre Saudan).

Related research
Keywords: corporate control; liquidity; corporate governance; ownership structure;

Other versions of this item:

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

Cited by:
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  1. Goergen, M. & Renneboog, L.D.R. & Khurshed, A., 2004. "Shareholder lockup agreements in the European new markets," Discussion Paper 121, Tilburg University, Center for Economic Research. [Downloadable!]
  2. Manjon, M.C., 2003. "The trade-off between risk and control in corporate ownership," Discussion Paper 81, Tilburg University, Center for Economic Research. [Downloadable!]
  3. Réal Labelle & Alain Schatt, 2005. "Structure de propriété et communication financière des entreprises françaises," Revue Finance Contrôle Stratégie, Editions Economica, vol. 8(3), pages 77-104, September. [Downloadable!]
  4. Goergen, M. & Renneboog, L.D.R., 1999. "Prediction of ownership and control concentration in German and UK initial public offerings," Discussion Paper 103, Tilburg University, Center for Economic Research. [Downloadable!]
  5. Goergen, M. & Renneboog, L.D.R., 2003. "Insider retention and long-run performance in German and UK IPO's," Discussion Paper 16, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
  6. Réal Labelle & Alain Schatt, 2005. "Structure de propriété et communication financière des entreprises françaises;Ownership Structure and Corporate Disclosures:The French Case," Working Papers FARGO 1050701, Université de Bourgogne - Latec/Fargo (Research center in Finance,organizational ARchitecture and GOvernance). [Downloadable!]
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