Unbundling Ownership and Control |
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| Authors: | Daniel Ferreira Emanuel Ornelas John L. Turner |
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| Affiliation: | 1. Department of Finance, London School of Economics, London, UK;2. Department of Economics, Sao Paulo School of Economics‐FGV, Sao Paulo, Brazil;3. Department of Management, London School of Economics, London, UK;4. Department of Economics, University of Georgia, Athens, GA |
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| Abstract: | We study control contests under asymmetric information. Using a mechanism design approach, we fully characterize the optimal control contest mechanism. The optimal mechanism requires increasing the number of shares owned by the incumbent insider if he remains in control, while giving him a golden parachute that includes both shares and cash if he is deposed. The model underscores a novel explanation for the prevalence and persistence of the separation of ownership from control: efficiency in control contests is more easily achieved when ownership of cash flow rights is not concentrated in the hands of insiders. |
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