Security design, ownership structure and governance rules provide a mechanism for the entrepreneur to maximize his expected wealth. In the context of takeovers, contestants with different skills may derive control benefits and possess private information. His first-mover advantage induces a bargaining structure against a future rival. I show, concentrated voting rights protect his benefit and extract the rival's. Nonvoting claims, construed as call options on equity, free ride and extract cashflow improvements. When the entrepreneur faces adverse selection, debt with mutable voting right commits him to yield control.; A conversion option, with mutable voting and cashflow rights, is both a bond put and an equity call. It may mitigate or exacerbate the under-investment problem. The American version is vastly different from the European. The embedded bond call option can be a collateral that dissuades stockholders from cheating. The conversion price may track the stock price, at first, but stay fixed, later. When the price is stochastic, the option is a bond put with a fixed payoff (paid as liquid shares). If asymmetric information is resolved early, and if the firm's actions can be reversed, bondholders may seize control by converting. The put may affect how much output, if any, is produced. When the conversion price is fixed, the option is an equity call with a stochastic payoff. If information arrives late, or if the firm's actions can't be altered, investors wait to share the final cashflow. The call affects how the output is shared. Thus, it's not the nature of the problems but, rather, when the information asymmetry is resolved that guides the conversion policy. Options held by outsiders, induce insiders to be truthful and disciplined. The theory explains why firms issue fewer types of claims than the number of information-related problems they face.
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