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Private versus Public Ownership: Investment, Ownership Distribution, and Optimality

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  • Salman Shah

    (University of Toronto)

  • Anjan V. Thakor

    (Washington University in St. Louis)

Abstract

Examined in this paper is the choice between private and public incorporation of an asset for an entrepreneur (asset owner) who hires a manager and with superior information about the asset's return distribution. Public sale of equity is shown to be the preferred alternative when (a) capital market issue costs are low or (b) the asset's idiosyncratic risk is high and the owner is either sufficiently risk averse or sufficiently 'optimistic' about the asset's expected return. Thus, those assets deemed most valuable by their owners will tend to be publicly incorporated. The paper also explores the impact of incorporation mode--private versus public--and information structure on the firm's investment policy and ownership distribution.

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Bibliographic Info

Paper provided by EconWPA in its series Finance with number 0411026.

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Length: 20 pages
Date of creation: 11 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0411026

Note: Type of Document - pdf; pages: 20
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Web page: http://128.118.178.162

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Cited by:
  1. Fernandez-Olmos, Marta & Rosell-Martinez, Jorge & Espitia-Escuer, Manuel Antonio, 2008. "Double Sided Moral Hazard and Share Contracts in agriculture," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 43863, European Association of Agricultural Economists.
  2. Daniel Ferreira & Gustavo Manso & André C. Silva, 2014. "Incentives to Innovate and the Decision to Go Public or Private," Review of Financial Studies, Society for Financial Studies, vol. 27(1), pages 256-300, January.
  3. Arnoud W.A. Boot & Radhakrishnan Gopaian & Anjan V. Thakor, 2006. "Market Liquidity, Investor Participation and Managerial Autonomy: Why do Firms go Private?," Tinbergen Institute Discussion Papers 06-011/2, Tinbergen Institute.
  4. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," THEMA Working Papers 2012-38, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  5. Chod, Jiri & Lyandres, Evgeny, 2011. "Strategic IPOs and product market competition," Journal of Financial Economics, Elsevier, vol. 100(1), pages 45-67, April.
  6. Sueyoshi, Toshiyuki & Goto, Mika, 2012. "Data envelopment analysis for environmental assessment: Comparison between public and private ownership in petroleum industry," European Journal of Operational Research, Elsevier, vol. 216(3), pages 668-678.
  7. Chen, Andrew H. & Mazumdar, Sumon C., 1997. "A dynamic model of firewalls and non-traditional banking," Journal of Banking & Finance, Elsevier, vol. 21(3), pages 393-416, March.
  8. Helwege, Jean & Packer, Frank, 2009. "Private matters," Journal of Financial Intermediation, Elsevier, vol. 18(3), pages 362-383, July.
  9. Arnoud W.A. Boot & Radhakrishnan Gopalan & Anjan V. Thakor, 2003. "Go Public or Stay Private: A Theory of Entrepreneurial Choice," Tinbergen Institute Discussion Papers 03-096/2, Tinbergen Institute.
  10. Francois Lecointe & Philippe Ducos & Patrick Artus, 1992. "Rachats d'entreprise avec endettement (LBO et MBO) : motivations micro-économiques, effets sur l'efficacité des entreprises et risques macro-économiques," Économie et Prévision, Programme National Persée, vol. 102(1), pages 89-104.
  11. Chen, Andrew H. & Hung, Mao-Wei & Mazumdar, Sumon C., 1995. "Loan covenants and corporate debt policy under bank regulations," Journal of Banking & Finance, Elsevier, vol. 19(8), pages 1419-1436, November.
  12. Arnoud W.A. Boot & Radhakrishnan Gopaian & Anjan V. Thakor, 2006. "Market Liquidity, Investor Participation and Managerial Autonomy: Why do Firms go Private?," Tinbergen Institute Discussion Papers 06-011/2, Tinbergen Institute.
  13. Arnoud W.A. Boot & Radhakrishnan Gopalan & Anjan V. Thakor, 2003. "Go Public or Stay Private: A Theory of Entrepreneurial Choice," Tinbergen Institute Discussion Papers 03-096/2, Tinbergen Institute.
  14. Andersson, H., 1995. "Landlords and farmers: implications of disparities in bargaining power for tenancy in agriculture," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 12(2), August.
  15. Andersson, H., 1995. "Landlords and farmers: implications of disparities in bargaining power for tenancy in agriculture," Agricultural Economics, Blackwell, vol. 12(2), pages 151-162, August.
  16. James Brau & J. Carpenter & Mauricio Rodriguez & C. Sirmans, 2013. "REIT Going Private Decisions," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 24-43, January.

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