Blocks, Liquidity and Corporate Control

The paper develops a simple model of optimal corporate ownership structure in which costs and benefits of ownership concentration are analysed. The main question addressed is how to reconcile the liquidity benefits obtained through dispersed corporate ownership with control of management, which is effective only with some degree of ownership concentration. One option is for a firm to create and maintain a controlling block, thus limiting ownership dispersion. Another is to seek maximum ownership dispersion and rely on secondary trading to create a controlling interest when needed. The paper analyses these options and provides criteria for the optimal choice of ownership structure.

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