On the relation between ownership dispersion and the firm's market value |
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Authors: | Giorgio Ragazzi |
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Affiliation: | 1. The World Bank, Washington, DC 20433, USA;2. University of Bergamo, Bergamo, Italy |
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Abstract: | Firms with widely-held ownership are relatively few. Shareholders controlling a firm are willing to forego the benefit of portfolio diversification because they can obtain a ‘rent from control’ at the expense of minority shareholders. This entails relevant conclusions for financial theory: (1) the total market value of a closely-held firm is lower, and its cost of capital higher than that of an identical widely-held firm is lower and its cost of capital higher than that of (3) different prices of control and minority shares and disconuities may impede evolution from closely to widely-held ownership. |
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