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

Hubert de La Bruslerie

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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; investors protection; private benefits (search for similar items in EconPapers)
Date: 2013
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00937543v1
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Citations: View citations in EconPapers (2)

Published in Journal of Corporate Finance, 2013, 23, pp.88-107. ⟨10.1016/j.jcorpfin.2013.07.007⟩

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Journal Article: Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00937543

DOI: 10.1016/j.jcorpfin.2013.07.007

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