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Majority Voting and Corporate Control: The Rule of the Dominant Shareholder

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Author Info
DeMarzo, Peter M
Abstract

This 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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Publisher Info
Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 60 (1993)
Issue (Month): 3 (July)
Pages: 713-34
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Handle: RePEc:bla:restud:v:60:y:1993:i:3:p:713-34

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  1. CRES, Hervé & TVEDE, Mich, 2004. "The Dreze and Grossman-Hart criteria for production in incomplete markets: Voting foundations and compared political stability," Les Cahiers de Recherche 794, HEC Paris. [Downloadable!]
  2. A. De Waegenaere & Heracles M. Polemarchakis & L. Ventura, 1997. "Asset Markets and Investment Decisions," Cowles Foundation Discussion Papers 1147, Cowles Foundation, Yale University. [Downloadable!]
    Other versions:
  3. CRES, Herve & TVEDE, Mich, 2001. "Proxy fights in incomplete markets: when majority voting and sidepayments are equivalent," Les Cahiers de Recherche 726, HEC Paris. [Downloadable!]
  4. Eva Carceles-Poveda, 2009. "Asset Prices and Business Cycles under Market Incompleteness," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(3), pages 405-422, July. [Downloadable!] (restricted)
    Other versions:
  5. Ernst Maug & Bilge Yilmaz, . "Two-Class Voting: A Mechanism for Conflict Resolution?," Rodney L. White Center for Financial Research Working Papers 4-00, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
  6. Beker, Pablo F, 2007. "Market Selection and Payout Policy Under Majority Rule," The Warwick Economics Research Paper Series (TWERPS) 814, University of Warwick, Department of Economics. [Downloadable!]
  7. Tarun Sabarwal, 2004. "Value Maximization As An Ex Post Consistent Firm Objective When Markets are Incomplete," GE, Growth, Math methods 0406002, EconWPA, revised 19 Jul 2004. [Downloadable!]
  8. Crès, Hervé & Tvede, Mich, 2006. "Portfolio diversification and internalization of production externalities through majority voting," Les Cahiers de Recherche 816, HEC Paris. [Downloadable!]
  9. Ernst Maug & Bilge Yilmaz, . "Two-Class Voting: A Mechanism for Conflict Resolution?," Rodney L. White Center for Financial Research Working Papers 04-00, Wharton School Rodney L. White Center for Financial Research. [Downloadable!]
  10. CRES, Herve, 2000. "Majority stable production equilibria : a multivariate mean shareholders theorem," Les Cahiers de Recherche 706, HEC Paris. [Downloadable!]
  11. Stefano Demichelis & Klaus Ritzberger, 2007. "Corporate Control and the Stock Market," Carlo Alberto Notebooks 60, Collegio Carlo Alberto. [Downloadable!]
  12. CRES, Herve & TVEDE, Mich, 2001. "Voting in assemblies of shareholders and incomplete markets," Les Cahiers de Recherche 722, HEC Paris. [Downloadable!]
    Other versions:
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