Research Details

Abstract

This paper investigates the determinants of security design. We consider the assignment of both cash flows and voting rights, focusing on corporate control. We postulate that a conflict of interest exists between contestants for control and outside investors. The conflict arises because private benefits of control give contestants an incentive to acquire control even when this reduces firm value. Security design is a tool for resolving these conflicts and maximizing firm value. Our main result is that a single voting security is optimal.

Type

Article

Author(s)

Milton Harris, Artur Raviv

Date Published

1989

Citations

Harris, Milton, and Artur Raviv. 1989. The Design of Securities. Journal of Financial Economics.(2): 255-287.