Agency Costs of Controlling Minority Shareholders
AbstractThis 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 - 1997, for which we have complete and detailed data on ownership and corporate control instruments, we provide three results: (i) Families employ CMS structures, via dual-class shares and other corporate control instruments, about 1.5 - 2 times more often than other categories of owners (corporations, financial institutions). (ii) 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. (iii) The source of the discount seems to be partly what such owners/firms do: return on assets (ROA) 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 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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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 364.
Length: 39 pages
Date of creation: 10 Mar 2000
Date of revision: 06 Jun 2000
Publication status: Published in Journal of Financial and Quantitative Analysis , 2003, pages 695-719.
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Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
Phone: +46-(0)8-736 90 00
Fax: +46-(0)8-31 01 57
Web page: http://www.hhs.se/
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Agency costs; Corporate control; Ownership structures; Corporate governance;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-03-13 (All new papers)
- NEP-CFN-2000-03-13 (Corporate Finance)
- NEP-FIN-2000-03-13 (Finance)
- NEP-IND-2000-03-13 (Industrial Organization)
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