THE CHOICE OF STOCK OWNERSHIP STRUCTURE - AGENCY COSTS, MONITORING AND THE DECISION TO GO PUBLIC

From the viewpoint of a company's controlling shareholder, the optimal ownership structure generally involves some measure of dispersion, to avoid excessive monitoring by other shareholders. The optimal dispers ion cf share ownership can be achieved by going public, but this choic e also entails some costs (the cost of listing and the loss of control over the shareholder register). If the controlling shareholder sells shares privately instead, he avoids the costs of going public but must tolerate large external shareholders who may monitor him too closely. Thus, the owner faces a trade-off between the cost of providing a liq uid market and overmonitoring. The incentive to go public is stronger, the larger the amount of external funding required. The listing decis ion is also affected by the strictness of disclosure rules for public relative to private firms, and the legal limits on bribes aimed at dis suading monitoring by shareholders.