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Zoom URL: https://uni-frankfurt.zoom.us/j/67017351682?pwd=bGRoNWtaQjYxbnQ4QTNGUk4zTHgrQT09
Meeting ID: 670 1735 1682
Corporate groups are the all-but-universal legal structure of the modern firm. In view of the cost of operating a multitude of legal entities, the question arises whether the group form confers an efficiency advantage on firms, rather than an opportunity to exploit externalities from limited liability. Based on economic contract theory, the paper advances the hypothesis that the group form can offer an organizational benefit: By centralizing control in the parent, it improves coordination as compared to market contracting. At the same time, value appropriation by the subsidiary revives some of the motivational force of independent ownership for the managers and other stakeholders of the subsidiary. Creating a corporate structure for this purpose instead of a merely internal arrangement allows the firm to use the fiduciary duties of controlling shareholders and directors as a commitment to decentralized ownership. In addition, asset partitioning confines stakeholders to the subsidiary’s own assets, making them more sensitive to the subsidiary’s value for the group.