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

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  • Ramon Castillo
  • Stergios Skaperdas

Abstract

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.

Suggested Citation

  • Ramon Castillo & Stergios Skaperdas, 2003. "All in the Family or Public? Law and Appropriative Costs as Determinants of Ownership Structure," CESifo Working Paper Series 921, CESifo.
    • Handle: RePEc:ces:ceswps:_921
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    Cited by:

    1. Ramón A. Castillo Ponce, 2007. "Entre familia y amigos: la elección de la estructura de propiedad corporativa," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 22(1), pages 3-18.
    2. Burkart, Mike & Panunzi, Fausto, 2006. "Agency conflicts, ownership concentration, and legal shareholder protection," Journal of Financial Intermediation, Elsevier, vol. 15(1), pages 1-31, January.
    3. Jing Zhou & On Kit Tam & Wei Lan, 2016. "Solving agency problems in Chinese family firms – A law and finance perspective," Asian Business & Management, Palgrave Macmillan, vol. 15(1), pages 57-82, February.
    4. Adongo, Jonathan O., 2017. "Legal jurisdiction, director liability law, and venture capitalists’ equity stakes in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 78-93.

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