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

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  • de La Bruslerie, Hubert
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.

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  • de La Bruslerie, Hubert, 2013. "Equal opportunity rule vs. market rule in transfer of control: How can private benefits help to provide an answer?," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 88-107.
    • Handle: RePEc:eee:corfin:v:23:y:2013:i:c:p:88-107
    DOI: 10.1016/j.jcorpfin.2013.07.007
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    Cited by:

    1. Wang, Ying & Lahr, Henry, 2017. "Takeover law to protect shareholders: Increasing efficiency or merely redistributing gains?," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 288-315.

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    More about this item

    Keywords

    Equal opportunity rule; Transfer of control; Takeover; Controlling shareholder; Investor's protection; Private benefits;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K2 - Law and Economics - - Regulation and Business Law

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