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- Title
Agency Costs, Mispricing, and Ownership Structure.
- Authors
Chernenko, Sergey; Foley, C. Fritz; Greenwood, Robin
- Abstract
Standard theories of ownership assume insiders ultimately bear all agency costs and therefore act to minimize conflicts of interest. However, overvalued equity can offset these costs and induce listings associated with higher agency costs. We explore this possibility by examining a sample of public listings of Japanese subsidiaries. Subsidiaries in which the parent sells a larger stake and subsidiaries with greater scope for expropriation by the parent firm are more overpriced at listing, and minority shareholders fare poorly after listing as mispricing corrects. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced.
- Subjects
INDUSTRIAL costs; COST control; MARKET pricing; CONFLICT of interests; BUSINESS enterprises; ORGANIZATIONAL structure; SUBSIDIARY corporations
- Publication
Financial Management (Wiley-Blackwell), 2012, Vol 41, Issue 4, p885
- ISSN
0046-3892
- Publication type
Article
- DOI
10.1111/j.1755-053X.2012.01214.x