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Agency Costs of Controlling Minority Shareholders

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Author Info
Cronqvist, Henrik
Nilsson, Mattias
Abstract

This paper estimates the agency costs of controlling minority shareholders (CMSs), who have control of a firm's votes, while owning only a minority of the cash flow rights. Analyzing a panel of 309 listed Swedish firms during 1991 2 times more often than other categories of owners (corporations, financial institutions). Estimated agency costs of controlling shareholders are 6% 25% of firm value (Tobin's q) for the median firm among the different categories of controlling owners, ceteris paribus. Family CMSs are associated with the largest discount on firm value. The source of the discount seems to be partly what such owners/firms do: return on assets is significantly lower for firms with concentrated vote control. It also seems as if the discount is related to what such owners/firms do not do. Family CMSs seem to hang on to the control too long from the non-controlling shareholders' perspective; e.g., firms with family CMSs are about 50% less likely to be taken over compared to other firms.

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Publisher Info
Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 38 (2003)
Issue (Month): 04 (December)
Pages: 695-719
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:cup:jfinqa:v:38:y:2003:i:04:p:695-719_00

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  1. Lauterbach, Beni & Yafeh, Yishay, 2009. "Long Term Changes in Voting Power and Control Structure following the Unification of Dual Class Shares," CEPR Discussion Papers 7287, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Morten Bennedsen & Kasper Nielsen, 2005. "The Principle of Proportionality: Separating the Impact of Dual Class Shares, Pyramids and Cross-ownership on Firm Value Across Legal Regimes in Western Europe," CIE Discussion Papers 2005-14, University of Copenhagen. Department of Economics. Centre for Industrial Economics. [Downloadable!]
  3. Peter Hogfeldt, 2005. "The History and Politics of Corporate Ownership in Sweden," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 517-580 National Bureau of Economic Research, Inc. [Downloadable!]
  4. Peter Hogfeldt, 2004. "The History and Politics of Corporate Ownership in Sweden," NBER Working Papers 10641, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Anete Pajuste, 2005. "Determinants and consequences of the unification of dual-class shares," Working Paper Series 465, European Central Bank. [Downloadable!]
  6. Cronqvist, Henrik & Heyman, Fredrik & Nilsson, Mattias & Svaleryd, Helena & Vlachos, Jonas, 2006. "Do Entrenched Managers Pay Their Workers More?," Working Paper Series 2005-23, Ohio State University, Charles A. Dice Center for Research in Financial Economics. [Downloadable!]
    Other versions:
  7. Jara-Bertin, Mauricio & López-Iturriaga, Félix J., 2008. "Earnings Management and Contest to the Control: An Analysis of European Family Firms," MPRA Paper 9660, University Library of Munich, Germany. [Downloadable!]
  8. Bennedsen, Morten & Nielsen, Kasper & Pérez-González, Francisco & Wolfenzon, Daniel, 2005. "Inside the Family Firm," Working Papers 21-2005, Copenhagen Business School, Department of Economics. [Downloadable!]
  9. Eklund, Johan E, 2009. "One Share – One Vote: new evidence from the Nordic countries," Working Paper Series in Economics and Institutions of Innovation 168, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies. [Downloadable!]
  10. Morten Bennedsen & Kasper Nielsen & Francisco Pérez-González & Daniel Wolfenzon, 2005. "Inside the Family Firm: The Role of Families in Succession Decisions and Performance," CIE Discussion Papers 2005-13, University of Copenhagen. Department of Economics. Centre for Industrial Economics, revised Sep 2005. [Downloadable!]
  11. Bennedsen, Morten & Meisner, Kasper, Nielsen, 2006. "The Principle of Proportionality," Working Papers 22-2005, Copenhagen Business School, Department of Economics. [Downloadable!]
  12. Giannetti, Mariassunta & Laeven, Luc, 2007. "Pension Reform, Ownership Structure, and Corporate Governance: Evidence from Sweden," CEPR Discussion Papers 6489, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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