Working Paper: CEPR ID: DP4219
Authors: Arnoud W. A. Boot; Radhakrishnan Gopalan; Anjan Thakor
Abstract: In this Paper we analyse an entrepreneur/manager?s choice between private and public ownership in a setting in which management needs some ?elbow room? or autonomy to manage the firm optimally. In public capital markets, the corporate governance regime in place exposes the firm to exogenous controls, so that management may lack the autonomy it desires. By contrast, private ownership can provide management with the desired autonomy due to the possibility of precisely-calibrated private contracting. The disadvantage of private ownership (relative to public ownership) is that it imposes a cost of illiquidity on those who provide financing. We explore this trade-off between managerial autonomy and the cost of capital in a simple setting and draw a number of new testable implications.
Keywords: ownership structures; stock market listing
JEL Codes: D83; G30; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Corporate governance stringency (G38) | Choice of ownership structure (G32) |
| Lax corporate governance (G38) | Preference for private ownership (P14) |
| Stringent corporate governance (G38) | Preference for private ownership (P14) |
| Intermediate governance stringency (H19) | Preference for public ownership (L32) |
| Higher agreement between management and investors (G39) | Lower perceived costs of managerial autonomy (D23) |
| Lower perceived costs of managerial autonomy (D23) | Ownership decision (R21) |