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An Analysis of Shareholder Agreements

Ljungqvist, Alexander; Habib, Michel Antoine; Chemla, Gilles (2007), An Analysis of Shareholder Agreements, Journal of the European Economic Association, 5, 1, p. 93-121. http://dx.doi.org/10.1162/JEEA.2007.5.1.93

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Type
Article accepté pour publication ou publié
Date
2007
Journal name
Journal of the European Economic Association
Volume
5
Number
1
Publisher
Wiley
Pages
93-121
Publication identifier
Metadata
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Author(s)
Ljungqvist, Alexander
Habib, Michel Antoine
Chemla, Gilles
Abstract (EN)
Shareholder agreements govern the relations among shareholders in privately held firms, such as joint ventures and venture capital-backed companies. We provide an economic explanation for key clauses in such agreements—namely, put and call options, tag-along and drag-along rights, demand and piggy-back rights, and catch-up clauses. In a dynamic moral hazard setting, we show that these clauses can ensure that the contract parties make efficient ex ante investments in the firm. They do so by constraining renegotiation. In the absence of the clauses, ex ante investment would be distorted by unconstrained renegotiation aimed at (i) precluding value-destroying ex post transfers, (ii) inducing value-increasing ex post investments, or (iii) precluding hold-out on value-increasing sales to a trade buyer or the IPO market.
Subjects / Keywords
Corporate Governance; Restructuring; Investment Decision
JEL
G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
G11 - Portfolio Choice; Investment Decisions