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All in the Family or Public? Law and Appropriative Costs as Determinants of Ownership Structure

  • Ramon Castillo
  • Stergios Skaperdas

We examine how the legal protection of outside shareholders and the appropriative costs that they induce influence the incentives for private firms to go public. A higher degree of protection of shareholders can increase the appropriative costs associated with the conflict between managers and shareholders. To counteract this effect the managers/owners increase the share of the firm they retain so that, overall, higher protection of outsiders increases the likelihood of going public. In addition, we examine how the share of funds raised used to finance the firm affects both appropriative costs and the decision to sell.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 921.

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Date of creation: 2003
Date of revision:
Handle: RePEc:ces:ceswps:_921
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  1. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
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  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
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  8. Christian Riis & Derek J. Clark, 1997. "Contest success functions: an extension," Economic Theory, Springer, vol. 11(1), pages 201-204.
  9. Hirshleifer, Jack, 1995. "Anarchy and Its Breakdown," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 26-52, February.
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  12. repec:oup:qjecon:v:112:y:1997:i:3:p:693-728 is not listed on IDEAS
  13. repec:oup:qjecon:v:113:y:1998:i:1:p:187-225 is not listed on IDEAS
  14. Garfinkel, M.R. & Skaperdas, S., 2000. "Contract or War? On the Consequences of a Broader View of Self-Interest in Economics," Papers 99-00-12, California Irvine - School of Social Sciences.
  15. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  16. Jack Hirshleifer, 1989. "Conflict and rent-seeking success functions: Ratio vs. difference models of relative success," Public Choice, Springer, vol. 63(2), pages 101-112, November.
  17. Muller, Holger M & Warneryd, Karl, 2001. "Inside versus Outside Ownership: A Political Theory of the Firm," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 527-41, Autumn.
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