IDEAS home Printed from https://ideas.repec.org/a/now/jnllfa/108.00000052.html
   My bibliography  Save this article

A Contracting Model of Entire Fairness: An Analysis of Divestitures of Parent-Held Control Blocks

Author

Listed:
  • Lovo, Stefano
  • Slovin, Myron B.
  • Sushka, Marie E.

Abstract

We develop a contracting theory of entire fairness and apply it to divestitures of majority blocks held by controlling parent firms, including affiliate purchases of such blocks, transactions subject to entire fairness due to the potential for self-dealing. A parent can also divest its stake via business judgment rule methods. Theory and evidence indicate that under entire fairness affiliate purchases occur only when both parent and affiliate hold positive private information; premiums paid are equal to those paid in arm’s length, third party deals. Affiliates gain value at block purchases but lose value in spin-offs and secondary stock issues.

Suggested Citation

  • Lovo, Stefano & Slovin, Myron B. & Sushka, Marie E., 2021. "A Contracting Model of Entire Fairness: An Analysis of Divestitures of Parent-Held Control Blocks," Journal of Law, Finance, and Accounting, now publishers, vol. 6(1), pages 89-123, May.
    • Handle: RePEc:now:jnllfa:108.00000052
    DOI: 10.1561/108.00000052
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/108.00000052
    Download Restriction: no
    File URL: https://libkey.io/10.1561/108.00000052?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Conflict transaction; entire fairness; business judgment rule;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:jnllfa:108.00000052. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.