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The Hidden Costs Of Private Benefits Of Control: Value Shift And Efficiency, Hyun-Chul Lee
The Hidden Costs Of Private Benefits Of Control: Value Shift And Efficiency, Hyun-Chul Lee
Hyun-Chul Lee
This paper relates the two regimes governing control transfer to the adverse impacts that private benefits of control have on IPOs. Merely the value-transfer nature of private benefits alone may stymie efficient IPOs because of the wedge between the discount for private benefits in pricing and what the initial owner will eventually capture. Irrelevance of the value-shift nature to the initial owner’s payoffs serves efficient IPOs. This paper shows separate mechanisms by which the two rules generate such wedge. The Market Rule allows increase in private benefits via control transfer, causing discount with maximum ceiling of private benefits. To offset …