
Corporate Ownership And Compact Costs
Author(s) -
Gary S. Moore,
Gerald E. Smolen
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v7i1.6265
Subject(s) - equity (law) , shareholder , debt , business , market value , value (mathematics) , monetary economics , accounting , corporate governance , finance , financial economics , economics , law , machine learning , political science , computer science
Using definitions borrowed from property law, this paper contend shareholders receive less than complete ownership because the contract written by the state is deficient. This suggests that an additional residual property benefit exists in the firm separate and apart from both equity-holders and bondholder claims. Thus, the value of the firm is V = E + D + r, where V, E, and D are the market values of the firm, equity, and debt, respectively, and r is a residual value. The authors refer to this compact costs since it stems from the states faulty title document, and it explains investors paying a premium seeking corporate control.