IDEAS home Printed from https://ideas.repec.org/p/hit/hitcei/2008-2.html
   My bibliography  Save this paper

Private Contracting and Corporate Governance: Evidence from the Provision of Tag-Along Rights in an Emerging Market

Author

Listed:
  • Bennedsen, Morten
  • Nielsen, Kasper Meisner
  • Nielsen, Thomas Vester

Abstract

We analyse controlling owners incentive to provide non-controlling owners with better protection against self-dealing through offering new shares with tag-along rights, - the private contracting alternative to equal price provision in takeover legislation. Our model identifies two counteracting effects: The benefit of offering tag-along rights is the anti-expropriation effect which makes it harder for new owners to finance a takeover through expropriation of minority owners. The cost is the rent transfer effect which implies that there is a wealth transfer from controlling owners to existing minority owners. Empirically we test the implications of the model using data on equity offerings in Brazil. Consistent with the theoretical predictions we find that offering tag-along rights increases market value of a firm and that companies offering shares with tag-along rights offer larger claims, have less disproportional ownership structure, have a smaller group of existing minority shareholders and are more likely to issue new shares. The paper, thus, find strong support for private contracting being an important alternative governance mechanism to legal protection of investors.

Suggested Citation

  • Bennedsen, Morten & Nielsen, Kasper Meisner & Nielsen, Thomas Vester, 2008. "Private Contracting and Corporate Governance: Evidence from the Provision of Tag-Along Rights in an Emerging Market," CEI Working Paper Series 2008-2, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2008-2
    Note: November 2007
    as

    Download full text from publisher

    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/29277/1/WP2008-2.pdf
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Black, Bernard S. & de Carvalho, Antonio Gledson & Gorga, √Črica, 2010. "Corporate governance in Brazil," Emerging Markets Review, Elsevier, vol. 11(1), pages 21-38, March.

    More about this item

    Keywords

    Private contracting; Corporate governance; Emerging markets; Tag-along rights;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:hit:hitcei:2008-2. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reiko Suzuki) The email address of this maintainer does not seem to be valid anymore. Please ask Reiko Suzuki to update the entry or send us the correct email address. General contact details of provider: http://edirc.repec.org/data/cehitjp.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.