Majority Voting and Corporate Control: The Rule of the Dominant Shareholder
AbstractThis paper incorporates a model of corporate control into a general equilibrium framework with incomplete markets. The classical objective of value maximization is extended but is indeterminate. Instead, firms are viewed as being subject to shareholder control via some decision mechanism. As long as this decision mechanism is responsive to a unanimous preference by shareholders, shareholder control is consistent with, but stronger than, value maximization. The particular institution of majority voting by shareholders is examined. It is shown that, for generic economies, a majority rule equilibrium for a firm implies that production is optimal for the largest, or dominant, shareholder. Copyright 1993 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 60 (1993)
Issue (Month): 3 (July)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
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