An analysis of a strategy for management to separate and reward supportive shareholders

James S. Ang, Elli Kraizberg

Research output: Contribution to journalArticlepeer-review

Abstract

Managers prefer investors who share similar expectations of their firms' prospects. Instead of taking the distribution of investor types as given, we investigate the question of how the managers may be able to effect a change in the pattern of ownership in a world where outside shareholders hold heterogeneous expectations. Under the requirements that the mechanism is costless to the firm and involves no initial cash transfer among the shareholders, the solution is a menu of securities in the form of sidebets among the shareholders. Ex post, the mechanism allows the high-valuation investors to own a greater proportion of the firm and be rewarded with a greater share of the firm's wealth gains.

Original languageEnglish
Pages (from-to)639-658
Number of pages20
JournalJournal of Corporate Finance
Volume10
Issue number4
DOIs
StatePublished - Sep 2004

Keywords

  • Agents to choose principal
  • Heterogeneous expectations
  • Sidebets games
  • Sorting shareholders
  • Wealth transfer

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