Working Paper: CEPR ID: DP3457
Authors: Gilles Chemla; Michel Habib; Alexander P. Ljungqvist
Abstract: Shareholder agreements govern the relations among shareholders in privately-held companies, such as joint ventures or venture capital-backed ?rms. We provide an explanation for the use of put and call options, pre-emption rights, drag-along rights, demand rights, tag-along rights, and catch-up clauses in shareholder agreements. We view these clauses as serving to preserve the parties? incentives to make ex ante investments when ex post renegotiation may alter the parties? shares of the payoff. We extend our framework to discuss the use of other clauses, such as the option to extend the life of a business alliance.
Keywords: call options; catch-up clauses; demand rights; drag-along rights; preemption rights; put options; shareholder agreements; tag-along rights
JEL Codes: G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| put options (G13) | shareholder incentives (G35) |
| put options (G13) | investment behavior (G11) |
| call options (G13) | shareholder incentives (G35) |
| call options (G13) | investment behavior (G11) |
| preemption rights (P14) | negotiating behavior (C78) |
| preemption rights (P14) | investment decisions (G11) |
| tagalong rights (P14) | shareholder profit (G35) |
| tagalong rights (P14) | payoff proportions (G35) |
| clauses (Y60) | renegotiation needs (C78) |
| clauses (Y60) | investment protection (F21) |