Abstract and Keywords
This article argues that dispersed ownership resulted less from inexorable forces and more from private ordering. Neither legal nor political conditions mandated or prevented the appearance of dispersed ownership. Rather, entrepreneurs, investment bankers, and investors—all seeking to maximize value—sometimes saw reasons why selling control into the public market would maximize value for them. But when and why? That is the article's focus. It argues that law played less of a role than specialized intermediaries—investment banks, securities exchanges, and other agents—who found it to be in their self-interest to foster dispersed ownership and who compensated for weak legal protections. Initially, relying on reputational capital, self-regulatory institutions, and contractual mechanisms, entrepreneurs found ways to assure investors that they would not be exploited if they invested in their companies as minority shareholders. This resulted in a localized dispersion of ownership with control remaining with the founder/entrepreneur.
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