The Equal Opportunity Rule in Transfer of Control: A Contractual Model

Hubert de La Bruslerie

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Abstract: The equal opportunity rule is seen as protecting investors in the event of a transfer of control. This rule is analyzed in a setting of information asymmetry and future 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 the firm's future economic return and his private rate of appropriation. 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 behaviors of controlling and outside shareholders. The quality of information deteriorates despite the fact that the discipline may be stronger.

Keywords: Equal opportunity rule; transfer of control; takeover; controlling shareholder; investors protection; private benefits (search for similar items in EconPapers)
Date: 2010-12
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00636613v1
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Published in German Law and Economic Association, Dec 2010, Wiesbaden, Germany

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00636613

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