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Journal Article

A Property Rights Analysis of Newly Private Firms: Opportunities for Owners to Appropriate Rents and Partition Residual Risks

Marguerite Schneider and Alix Valenti
Business Ethics Quarterly
Vol. 21, No. 3 (July 2011), pp. 445-471
Stable URL: http://www.jstor.org/stable/41304440
Page Count: 27
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Property Rights Analysis of Newly Private Firms: Opportunities for Owners to Appropriate Rents and Partition Residual Risks
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Abstract

A key factor in the decision to convert a publicly owned company to private status is the expectation that value will be created, providing the firm with rent. These rents have implications regarding the property rights of the firm's capital-contributing constituencies. We identify and analyze the types of rent associated with the newly private firm. Compared to public firms, going private allows owners the potential to partition part of the residual risk to bond holders and employees, rendering them to be co-residual risk bearers with owners. We propose that new promotion-based contracts with bond holders and employees, reflecting their particular investments, be negotiated as the firm migrates from public to private status. These contracts should acknowledge the firm's intent to maximize shareholder value and its need to take the risks necessary to do so, but support that the firm's survival not be undermined due to its possibly opportunistic owners.

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