Stock Pyramids, Cross-Ownership, and the Dual Class Equity: The Creation and Agency Costs of Seperating Control from Cash Flow Rights / Lucian Bebchuk, Reinier Kraakman, George Triantis.

Format:

Book

Author/Creator:

Bebchuk, Lucian.

Contributor:

National Bureau of Economic Research.

Kraakman, Reinier.

Triantis, George.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6951.

NBER working paper series no. w6951

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Stock Pyramids, Cross-Ownership, and the Dual Class Equity

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

This paper examines common arrangements for separating control from cash flow rights: stock pyramids, cross-ownership structures, and dual class equity structures. We describe the ways in which such arrangements enable a controlling shareholder or group to maintain a complete lock on the control of a company while holding less than a majority of the cash flow rights associated with its equity. Next, we analyze the consequences and agency costs of these arrangements. In particular, we show that they have the potential to create very large agency costs -- costs that are an order of magnitude larger than those associated with controlling shareholders who hold a majority of the cash flow rights in their companies. The agency costs of these structures, we suggest, are also likely to exceed the agency costs of attending highly leveraged capital structures. Finally, we put forward an agenda for research concerning structures separating control from cash flow rights.

Notes:

Print version record

February 1999.