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Blockholder Scarcity, Takeovers, and Ownership Structures

Published online by Cambridge University Press:  06 April 2009

Gary Gorton  and
Matthias Kahl
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Abstract

Agency problems in firms are prevalent because of a scarcity of wealthy principals with corporate governance ability, whom we call “restructuring specialists.” We investigate how this scarce resource, “agency cost-free capital,” is allocated. We show that the restructuring specialists may acquire blocks only in those states of the worls in which they can increase firm value the most, which corresponds to a takeover. Firms with dispersed ownership and firms with a financial intermediary as a blockholder can coexist, although they are otherwise identical. The moderl can explain differences in corporate ownership structures and restructuring mechanisms across economies.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 43 , Issue 4 , December 2008 , pp. 937 - 974
Copyright
Copyright © School of Business Administration, University of Washington 2008

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