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Stakeholders and the composition of the voting rights of the board of directors

  • Galai, Dan
  • Wiener, Zvi

We propose a new approach to dynamic representation of different groups of stakeholders on the board of directors. This approach is based on a simple economic model of the firm, with an objective function to maximize its market value. We look at the marginal claim of each stakeholder on the assets of the firm. It divides the voting rights based on the change in value of each stakeholder with a one dollar change in the value of the firm as a whole. We translate these conditions to relative voting powers on the board. While there are many claims in the academic and popular literature on sharing voting rights on the board, our paper is the first to propose a quantitative dynamic model of the power sharing in the corporation.

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Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 14 (2008)
Issue (Month): 2 (April)
Pages: 107-117

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Handle: RePEc:eee:corfin:v:14:y:2008:i:2:p:107-117
Contact details of provider: Web page: http://www.elsevier.com/locate/jcorpfin

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  1. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
  2. Raheja, Charu G., 2005. "Determinants of Board Size and Composition: A Theory of Corporate Boards," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(02), pages 283-306, June.
  3. Benjamin E. Hermalin & Michael S. Weisbach, 1996. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," Working Papers _004, University of California at Berkeley, Haas School of Business.
  4. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  5. Baker, Malcolm & Gompers, Paul A, 2003. "The Determinants of Board Structure at the Initial Public Offering," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 569-98, October.
  6. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  7. Dan Galai & Alon Raviv & Zvi Wiener, 2003. "Liquidation Triggers and the Valuation of Equity and Debt," Finance 0305002, EconWPA.
  8. Linck, James S. & Netter, Jeffry M. & Yang, Tina, 2008. "The determinants of board structure," Journal of Financial Economics, Elsevier, vol. 87(2), pages 308-328, February.
  9. Boone, Audra L. & Casares Field, Laura & Karpoff, Jonathan M. & Raheja, Charu G., 2007. "The determinants of corporate board size and composition: An empirical analysis," Journal of Financial Economics, Elsevier, vol. 85(1), pages 66-101, July.
  10. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-25, June.
  11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  12. Coles, Jeffrey L. & Daniel, Naveen D. & Naveen, Lalitha, 2008. "Boards: Does one size fit all," Journal of Financial Economics, Elsevier, vol. 87(2), pages 329-356, February.
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