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- W2417469330 abstract "The paper offers a new understanding of the structure. It analyzing the relationship between the limited liability of investors (shareholders and debt creditor alike) and the ability of investors to allocate risk between them and to third parties by profit distribution (dividends and interest) and securities. It finds that each of the features of the structure – the limited liability, profit distribution and securities, are necessary in order to enable efficient large scale business ventures. At the same time, the same features leads to inefficient activities and allocate the cost to the general population. Furthermore, the paper shows that no law mechanism that allocates liability to one type of investors, such as the Hansmann and Kraakman pro-rate unlimited liability of the Bebchuk & Fried partial priority rule, can reduce the social cost of limited liability and profit distribution. The corporate is therefore the understanding that the form enhances efficiency on the one margin of reducing investors' risk but decrease efficiency on a second margin by creating built-in externalities, and this trade off cannot be solved by any law mechanism. Understanding the paradox as a theoretical framework to the analysis of the form enables to solve the famous Modigliani & Miller puzzle and explain why rational shareholders would prefer dividend distribution or share repurchase on profit from selling stocks. Furthermore, is shed light on unsolved question in the finance literature and policy, explaining why rational investors (or management which is committed to the best interest of the investors) would deliberately engage in market bubbles and in business with negative social utility and explain how shifting between finance through equity and debt can increase the total value of the corporation by allocating costs to non-investor stakeholders. The follow up paper will show how taxation can be used as Pigovian tax in order to reduce investors' externalities while preserving the efficiency benefits of the form." @default.
- W2417469330 created "2016-06-24" @default.
- W2417469330 creator A5090803512 @default.
- W2417469330 date "2014-01-01" @default.
- W2417469330 modified "2023-10-16" @default.
- W2417469330 title "From the 'Dividend Puzzle' to the 'Corporate Paradox' (1) - The Problem of Stakeholders' Externalities, Social Welfare and the Limited Liability" @default.
- W2417469330 doi "https://doi.org/10.2139/ssrn.2437041" @default.
- W2417469330 hasPublicationYear "2014" @default.
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