 Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?Journal of Corporate Finance, 2013, vol. 23, issue C, 88-107 Abstract: 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. Keywords: Equal opportunity rule; Transfer of control; Takeover; Controlling shareholder; Investor's protection; Private benefits (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:23:y:2013:i:c:p:88-107 DOI: 10.1016/j.jcorpfin.2013.07.007 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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