TY  - JOUR
AU  - Gorton,Gary
AU  - Kahl,Matthias
TI  - Blockholder Identity, Equity Ownership Structures, and Hostile Takeovers
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7123
PY  - 1999
Y2  - May 1999
UR  - http://www.nber.org/papers/w7123
L1  - http://www.nber.org/papers/w7123.pdf
N1  - Author contact info:
Gary B. Gorton
Yale School of Management
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
Fax: 203/432-8931
E-Mail: Gary.Gorton@yale.edu

Matthias Kahl
Leeds School of Business
University of Colorado at Boulder
UCB 419
Boulder, CO 80309-0419
Tel: 303/4920141
E-Mail: matthias.kahl@colorado.edu
AB  - We determine firms' equity ownership structures and provide a theory of hostile takeovers by distinguishing the roles of two types of blockholders: rich investors and institutional investors. We also distinguish the roles of two types of stock markets: the block market and the market with small investors. Rich investors have their own money at stake while institutional investors are run by professional managers and hence face agency conflicts.  Because rich investors face no agency problems they are better at monitoring managers.  If their wealth is insufficient to control all corporations, then  agency-cost free' capital is scarce.  We investigate the allocation of this scarce resource.  A hostile takeover is the consequence of a state-contingent allocation of agency-cost free capital.  We show that only rich investors engage in hostile takeovers.  Institutional investors instead are either permanent blockholding monitors or facilitate takeovers by selling blocks to rich investors.  Even though all firms are ex ante identical, some may rely on the takeover mechanism while others rely on permanent institutional monitoring.  We characterize the ownership structure of firms showing, in particular, that (ex ante) identical firms can have different ownership structures.  Some can have initially dispersed ownership while others have an institutional blockholder.
ER  -