Deconstructing Equity: Public Ownership, Agency Costs, and Complete Capital Markets
Ronald J. Gilson
ECGI :aw Research Paper No. 86
Stanford Law School, Law and Economics Olin Working Paper No. 346
Columbia Law Review, Forthcoming
The traditional law and finance focus on agency costs presumes, without acknowledgement, that the premise that diversified public shareholders are the cheapest risk-bearers is immutable. In this Essay, we raise the possibility that changes in the capital markets have called this premise into question, drawn into sharp relief by the recent private equity buying wave in which the size and range of public companies being taken private expanded significantly. In brief, we argue that private owners, in increasingly complete markets, can transfer risk in discrete slices to counterparties who, in turn, can manage or otherwise diversify away those risks they choose to forego, arguably becoming a lower cost substitute for traditional risk capital.
Keywords: agency costs, capital markets, corporate governance, derivatives, LBO, private equity, risk, risk management
JEL Classifications: D21, D52, G14, G32, G34, K22, L22
SSRN Accepted Paper Series
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Charles K. Whitehead Contact Information
Boston University School of Law
Ronald J. Gilson Contact Information
Stanford Law School
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