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Signalling to dispersed shareholders and corporate control

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  • Burkart, Mike
  • Lee, Samuel

Abstract

This article analyses how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative about security benefits. We show under which conditions this is feasible and which acquisition strategies used in practice meet these conditions. Second, the outsider can alternatively use derivatives to drive a wedge between her voting power and her economic interest in the firm. Such unbundling of ownership and control, while typically considered a source of corporate governance problems, is an efficient response to the frictions dispersed ownership causes for control contestability. We also show that unbundling comes with costs and benefits for the bidder's incentives to improve firm value.

Suggested Citation

  • Burkart, Mike & Lee, Samuel, 2015. "Signalling to dispersed shareholders and corporate control," LSE Research Online Documents on Economics 69538, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:69538
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    File URL: http://eprints.lse.ac.uk/69538/
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    Cited by:

    1. Mike Burkart & Samuel Lee, 2016. "Smart Buyers," Review of Corporate Finance Studies, Oxford University Press, vol. 5(2), pages 239-270.
    2. Tingjun Liu & Dan Bernhardt, 2021. "Rent Extraction with Securities Plus Cash," Journal of Finance, American Finance Association, vol. 76(4), pages 1869-1912, August.
    3. Burkart, Mike & Lee, Samuel, 2022. "Activism and takeovers," LSE Research Online Documents on Economics 111564, London School of Economics and Political Science, LSE Library.
    4. Burkart, Mike & Lee, Samuel, 2018. "Activism and Takeovers," CEPR Discussion Papers 12616, C.E.P.R. Discussion Papers.
    5. Mehmet Ekmekci & Nenad Kos, 2020. "Signaling Covertly Acquired Information," Working Papers 658, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    6. Mike Burkart & Samuel Lee, 2022. "Activism and Takeovers [The ’Wall Street Walk’ and shareholder activism: Exit as a form of voice]," Review of Financial Studies, Society for Financial Studies, vol. 35(4), pages 1868-1896.
    7. Frederick Dongchuhl Oh & Junghum Park, 2022. "Managerial incentives and the medium of exchange in takeovers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 4077-4086, December.
    8. Liu, Tingjun & Bernhardt, Dan, 2019. "Optimal equity auctions with two-dimensional types," Journal of Economic Theory, Elsevier, vol. 184(C).

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    More about this item

    Keywords

    Tender offers; Investor activism; Signalling; Free-rider problem; Means of payment; Unbundling; Ownership and control; Empty voting;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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