Liquidity and control: a dynamic theory of corporate ownership structure

Article Abstract:

Patrick Bolton and Ernst von Thadden have examined the issue of corporate governance under two systems, a public firm, and a privately-held firm. The aim is to explain problems of corporate control when managers are able to make inefficient decisions. The paper examined intervention by large blockholders, but there are alternative mechanisms which could be examined more fully. The incomplete contracting framework has both advantages and disadvantages. There are also details that are only partially solved such as those relating to asymmetric information.

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Liquidity and control: a dynamic theory of corporate ownership structure

Article Abstract:

Patrick Bolton and Ernst-Ludwig von Thadden have achieved new insights from their study of corporate ownership and firm values, and their work is valuable despite criticisms that can be made. There are assumptions that could be questioned, such as the extent to which a large stockholder can know as much about a company as its chief executive. A stockholder with such information could become the chief executive, an issue that is not tackled. There are technical details that could also be questioned, though they may not affect the main results.

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Liquidity and control: a dynamic theory of corporate ownership structure

Article Abstract:

Secondary market liquidity may not be perfectly compatible with corporate control. The balance between these aims can be examined under different structures of ownership, publicly traded, and privately held companies. Predictions for optimal ownership design can be made for different institutional structures for capital markets. The model can be altered slightly to explain the life cycles of many successful companies, which tend to go public only after they have reached a certain size.

Corporate growth

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