Stock Pyramids, Cross-Ownership, and the Dual Class Equity: The Creation and Agency Costs of Seperating Control from Cash Flow Rights
AbstractThis paper examines common arrangements for separating control from cash flow rights: stock pyramids, cross-ownership structures, and dual class equity structures. We describe the ways in which such arrangements enable a controlling shareholder or group to maintain a complete lock on the control of a company while holding less than a majority of the cash flow rights associated with its equity. Next, we analyze the consequences and agency costs of these arrangements. In particular, we show that they have the potential to create very large agency costs -- costs that are an order of magnitude larger than those associated with controlling shareholders who hold a majority of the cash flow rights in their companies. The agency costs of these structures, we suggest, are also likely to exceed the agency costs of attending highly leveraged capital structures. Finally, we put forward an agenda for research concerning structures separating control from cash flow rights.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6951.
Date of creation: Feb 1999
Date of revision:
Publication status: published as Lucian A. Bebchuk & Reinier Kraakman & George Triantis, 2000. "III. ECONOMIC EFFECTS OF CONCENTRATED CORPORATE OWNERSHIP: 10. Stock Pyramids, Cross-Ownership, and Dual Class Equity: The Mechanisms and Agency Costs of Separating Control from Cash-Flow Rights," NBER Chapters, in: Concentrated Corporate Ownership, pages 295-318 National Bureau of Economic Research, Inc.
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Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-1999-02-15 (All new papers)
- NEP-CFN-1999-02-15 (Corporate Finance)
- NEP-MIC-1999-02-15 (Microeconomics)
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