COMMENTS MOST WELCOME Asymmetric Information and the Choice of Corporate Governance Arrangements

This paper analyzes how asymmetric information affects the choice of corporate governance arrangements by firms that go public. It is shown that such asymmetry might lead firms to adopting – through the design of securities and of corporate charters-- corporate governance arrangements that are known to be inefficient both by public investors and those taking firms public. When assets with higher value produce opportunities for higher private benefits of control, asymmetric information about the characteristics of assets or managers will lead some or all of the firms going public to offer a sub-optimal level of investor protection. These results can help explain why charter provisions cannot be relied on to provide optimal investor protection in countries with poor investor protection, why companies going public in the US commonly include substantial antitakeover protections in their charters, and why companies rarely restrict self-dealing or the taking of corporate opportunities more than is done by the corporate laws of their country. The results also identify a beneficial role that mandatory legal rules can play in the area of corporate governance