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Control of Corporate Decisions: Shareholders vs. Management

Author

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  • Milton Harris
  • Artur Raviv

Abstract

This article addresses the issue of whether shareholders would be better off with enhanced control over corporate decisions. The issue has been hotly debated in the recent literature. Our main contribution is to use formal modeling to uncover some factors overlooked in these arguments. For example, we show that claims that shareholder control would reduce value because shareholders lack sufficient information to make important decisions or because they have a non-value-maximizing agenda are flawed. We also show, however, that even if shareholders seek to maximize firm value and can delegate decisions to management, shareholders should not control all major decisions. The Author 2010. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.

Suggested Citation

  • Milton Harris & Artur Raviv, 2010. "Control of Corporate Decisions: Shareholders vs. Management," Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 4115-4147, November.
  • Handle: RePEc:oup:rfinst:v:23:y:2010:i:11:p:4115-4147
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    File URL: http://hdl.handle.net/10.1093/rfs/hhq081
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    Citations

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    Cited by:

    1. Bruno Maria Parigi & Loriana Pelizzon & Ernst-Ludwig von Thadden, 2013. "Stock Market Returns, Corporate Governance and Capital Market Equilibrium," CESifo Working Paper Series 4496, CESifo Group Munich.
    2. Renneboog, Luc & Szilagyi, Peter G., 2011. "The role of shareholder proposals in corporate governance," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 167-188, February.
    3. Dicks, David & Fulghieri, Paolo, 2015. "Ambiguity, Disagreement, and Allocation of Control in Firms," CEPR Discussion Papers 10400, C.E.P.R. Discussion Papers.
    4. Wang, Yong & Mao, Connie X., 2015. "Shareholder activism of public pension funds: The political facet," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 138-152.
    5. Meg Adachi-Sato, 2015. "Insular Decision Making in the Board Room: Why Boards Retain and Hire Substandard CEOs," Manchester School, University of Manchester, vol. 83(2), pages 183-216, March.
    6. Tschöpel, Michael, 2013. "Erfolgsfaktoren der MemberValue-Strategie von Genossenschaftsbanken: Ergebnisse einer empirischen Erhebung," Arbeitspapiere 134, University of Münster, Institute for Cooperatives.
    7. Leitner, Yaron & Yilmaz, Bilge, 2016. "Regulating A Model," Working Papers 16-31, Federal Reserve Bank of Philadelphia.
    8. Agrawal, Ashwini K., 2012. "Corporate governance objectives of labor union shareholders: evidence from proxy voting," LSE Research Online Documents on Economics 69609, London School of Economics and Political Science, LSE Library.
    9. Bo Becker & Daniel Bergstresser & Guhan Subramanian, 2013. "Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable's Challenge," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 127-160.
    10. repec:eee:pacfin:v:46:y:2017:i:pa:p:191-211 is not listed on IDEAS
    11. Appel, Ian R. & Gormley, Todd A. & Keim, Donald B., 2016. "Passive investors, not passive owners," Journal of Financial Economics, Elsevier, vol. 121(1), pages 111-141.
    12. Meg Adachi-Sato, 2010. "Insular Decision Making in the Board Room: Why Boards Retain and Hire Substandard CEOs," CIRJE F-Series CIRJE-F-710, CIRJE, Faculty of Economics, University of Tokyo.
    13. Foley, Maggie & Cebula, Richard & Jun, Chulhee, 2013. "An Analysis of Withdrawn Shareholder Proposals," MPRA Paper 55422, University Library of Munich, Germany.

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