Private benefits of control distort the risk choices of owner-managers. In particular, when riskier projects entail a larger increase in cash flow than in private benefits (if successful), (more) equity financing renders the owner-manager (more) conservative, which lowers both expected payoff...

This paper analyzes how outsiders, such as bidders or activist investors, overcome the lack of coordination and information among dispersed shareholders. We identify the two basic means to achieve this goal. First, the outsider must relinquish private benefits in a manner that is informative...