University of Chicago Law Review

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This Article examines whether recent shifts among private and public markets are part of a more general phenomenon of "shapeshifting" among corporate entities. A shapeshift is a transformation of corporate form involving the creation or use of a new legal entity and one or more changes in structure, including capital structure and the allocation of control rights. Shapeshifting includes not only going private and private equity IPO transactions, but forms of public-company regulatory arbitrage and use of variable interest entities, structured investment vehicles, collateralized debt obligations, and related forms. I assess whether the insights of Ronald Coase and Tibor Scitovsky might be relevant to the analysis of shapeshifting, particularly private-equity transactions. I examine whether parties might shapeshift over time among seemingly Kaldor-Hicks efficient (or perhaps inefficient) regimes and draw some preliminary conclusions about different shapeshifting transactions. I argue that there are parallels between the rationales for shapeshifting and Coase's arguments about why transactions take place in firms rather than in markets. Coasian boundary determinations essentially are a function of direct and indirect costs. Shapeshifting is no different, yet regulatory interference leads firms to shift shape in undesirable ways. Specifically, going-private transactions have a stronger normative justification than structured finance transactions, because they are subject to lower direct and indirect costs. I conclude that scholars considering one category of shapeshifting might sharpen their normative analysis through comparisons to other shapeshifting transactions.