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Liquidity and Control : A Dynamic Theory of Corporate Ownership Structure

Author

Listed:
  • Patrick BOLTON
  • Ernst-Ludwig VON THADDEN

Abstract

The paper develops a theory of ownership structure based on the notion that corporate control and secondary market liquidity are not perfectly compatible with each other. We analyse the tradeoff between these two objectives for two different ownership structures: the privately held firm, which is characterised by restricted trading opportunities for owners and non-anonymous trading, and the publicly traded firm where trading opportunities are unrestricted and trading is anonymous. We develop pricing formulas for each structure, compare these with each other, and derive predictions for optimal ownership design, depending on the institutional structure of the capital market.

Suggested Citation

  • Patrick BOLTON & Ernst-Ludwig VON THADDEN, 1997. "Liquidity and Control : A Dynamic Theory of Corporate Ownership Structure," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9712, Université de Lausanne, Faculté des HEC, DEEP.
  • Handle: RePEc:lau:crdeep:9712
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    Cited by:

    1. Réal Labelle & Alain Schatt, 2005. "Structure de propriété et communication financière des entreprises françaises," Revue Finance Contrôle Stratégie, revues.org, vol. 8(3), pages 77-104, September.
    2. Martinez, Isabelle & Serve, Stéphanie, 2011. "The delisting decision: The case of buyout offer with squeeze-out (BOSO)," International Review of Law and Economics, Elsevier, vol. 31(4), pages 228-239.
    3. Goergen, M. & Renneboog, L.D.R. & Khurshed, A., 2004. "Shareholder Lockup Agreements in the European New Markets," Discussion Paper 2004-121, Tilburg University, Center for Economic Research.
    4. Goergen, M. & Renneboog, L.D.R. & Khurshed, A., 2004. "Shareholder Lockup Agreements in French Nouveau Marche and German Neuer Markt IPOs," Discussion Paper 2004-012, Tilburg University, Tilburg Law and Economic Center.
    5. Lammertjan Dam & Bert Scholtens, 2013. "Ownership Concentration and CSR Policy of European Multinational Enterprises," Journal of Business Ethics, Springer, vol. 118(1), pages 117-126, November.
    6. Goergen, M. & Renneboog, L.D.R., 2003. "Insider retention and long-run performance in German and UK IPO's," Discussion Paper 16, Tilburg University, Tilburg Law and Economic Center.
    7. Gaspar, Jose-Miguel & Massa, Massimo, 2007. "Local ownership as private information: Evidence on the monitoring-liquidity trade-off," Journal of Financial Economics, Elsevier, vol. 83(3), pages 751-792, March.
    8. Susanne Espenlaub & Marc Goergen & Arif Khurshed & Marko Remenar, 2013. "Do directors trade after IPO lockup expiry?," Chapters,in: Handbook of Research on IPOs, chapter 14, pages 275-294 Edward Elgar Publishing.
    9. Goergen, M. & Renneboog, L.D.R., 1999. "Prediction of Ownership and Control Concentration in German and UK Initial Public Offerings," Discussion Paper 1999-103, Tilburg University, Center for Economic Research.
    10. Constant Djama & Isabelle Martinez & Stéphanie Serve, 2012. "What do we know about delistings? A survey of the literature," Post-Print hal-00937899, HAL.
    11. Kandel, Eugene & Massa, Massimo & Simonov, Andrei, 2011. "Do small shareholders count?," Journal of Financial Economics, Elsevier, vol. 101(3), pages 641-665, September.
    12. Réal Labelle & Alain Schatt, 2005. "Structure de propriété et communication financière des entreprises françaises;Ownership Structure and Corporate Disclosures:The French Case," Working Papers CREGO 1050701, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.

    More about this item

    Keywords

    corporate control; liquidity; corporate governance; ownership structure;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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