Separating Ownership and Information
- American Economic Review (Forthcoming)
This paper identifies an upside of the separation of ownership and
control, typically the source of inefficiencies in the theory of the
firm. Because insiders obtain private information by exercising
control, the separation of ownership and control leads to a separation
of ownership and information. We show that this separation
is necessary for efficient trade in the market for corporate control.
The analysis reveals how strategic communication between inside
and outside shareholders facilitates takeovers by eliciting external
bidders’ private information. Our results call into question mandatory
disclosure requirements during takeovers.
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