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Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?

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Date
2013-12
Link to item file
http://halshs.archives-ouvertes.fr/halshs-00937543
Dewey
Economie financière
Sujet
Equal opportunity rule; transfer of control; takeover; controlling shareholder; investors protection; private benefits
JEL code
G3; G38; K2; G34; G30
Journal issue
Journal of corporate finance
Volume
23
Publication date
12-2013
Article pages
88–107
Publisher
Elsevier
DOI
http://dx.doi.org/10.1016/j.jcorpfin.2013.07.007
URI
https://basepub.dauphine.fr/handle/123456789/12532
Collections
  • DRM : Publications
Metadata
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Author
de La Bruslerie, Hubert
Type
Article accepté pour publication ou publié
Abstract (EN)
Having been introduced in the European Union and in many other countries, the equal opportunity rule is seen as protecting investors in the event of a transfer of control. This rule should be analyzed in a context of appropriation of private benefits between the new controlling shareholders and the outside investors. Both parties need to design a new implicit contract to share the firm's ownership. Using a signaling model, we show that the new controlling shareholder issues signals to outside shareholders to deliver private information on a firm's future economic return and her private rate of appropriation. The ownership stake of the controlling shareholder and the premium embedded in the acquisition price are key parameters. In a controlling ownership system, the equal opportunity rule modifies the relative behavior of controlling and outside shareholders. The quality of information deteriorates but the discipline on appropriation may become stronger.

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