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Multiple Shareholders and Control Contests

  • Bloch, Francis
  • Hege, Ulrich

We consider the allocation of corporate control in a company with two large and a continuum of small shareholders. Control is determined in a shareholders' meeting, where the large shareholders submit competing proposals in order to attract the vote of small shareholders. The presence of multiple shareholders reduces private benefits through competition for control. In the optimal ownership structure, the more efficient blockholder will hold just enough shares to gain control, but a large fraction of shares is allocated to the less efficient shareholder in order to reduce rents. We investigate when the large shareholders would want to trade parts or all of their share blocks among them, and show that the concern about retrading will lead to a larger than optimal stake of the controlling shareholder.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 42286.

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Date of creation: Jun 2003
Date of revision:
Handle: RePEc:pra:mprapa:42286
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  1. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June.
  2. Fausto Panunzi & Mike Burkart, 2001. "Agency Conflicts, Ownership Concentration, and Legal Shareholder Protection," FMG Discussion Papers dp378, Financial Markets Group.
  3. repec:oup:qjecon:v:113:y:1998:i:1:p:187-225 is not listed on IDEAS
  4. Barclay, Michael J & Holderness, Clifford G, 1991. " Negotiated Block Trades and Corporate Control," Journal of Finance, American Finance Association, vol. 46(3), pages 861-78, July.
  5. Ekkehart Boehmer, 1999. "Business Groups, Bank Control and Large Shareholders: An Analysis of German Takeovers," Working Papers 1999.20, Fondazione Eni Enrico Mattei.
  6. A. Admati & P. Pßeiderer & J. Zechner, 2005. "Large shareholder activism, risk sharing, and financial market equilibrium," Public Economics 0502011, EconWPA.
  7. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December.
  8. repec:oup:restud:v:62:y:1995:i:2:p:161-85 is not listed on IDEAS
  9. Bennedsen, Morten & Wolfenzon, Daniel, 2000. "The balance of power in closely held corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 113-139.
  10. Crespi, R. & Renneboog, L.D.R., 2000. "United we stand : Corporate Monitoring by Shareholder Coalitions in the UK," Discussion Paper 2000-18, Tilburg University, Center for Economic Research.
  11. Winton, Andrew, 1993. " Limitation of Liability and the Ownership Structure of the Firm," Journal of Finance, American Finance Association, vol. 48(2), pages 487-512, June.
  12. Marco Pagano & Ailsa Röell, 1998. "The Choice of Stock Ownership Structure: Agency Costs, Monitoring, and the Decision to Go Public," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 187-225.
  13. Erik Lehmann & Juergen Weigand, 2000. "Does the Governed Corporation Perform Better? Governance Structures and Corporate Performance in Germany," CoFE Discussion Paper 00-05, Center of Finance and Econometrics, University of Konstanz.
  14. Ernst Maug, 1998. "Large Shareholders as Monitors: Is There a Trade-Off between Liquidity and Control?," Journal of Finance, American Finance Association, vol. 53(1), pages 65-98, 02.
  15. Smith, Michael P, 1996. " Shareholder Activism by Institutional Investors: Evidence for CalPERS," Journal of Finance, American Finance Association, vol. 51(1), pages 227-52, March.
  16. Armo Gomes & Walter Novaes, 2001. "Sharing of Control as a Corporate Governance Mechanism," Penn CARESS Working Papers 3756d78204ca49d92aaf1c17c, Penn Economics Department.
  17. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, 02.
  18. Nicodano, Giovanna & Sembenelli, Alessandro, 2004. "Private benefits, block transaction premiums and ownership structure," International Review of Financial Analysis, Elsevier, vol. 13(2), pages 227-244.
  19. Jeffrey Zwiebel, 1995. "Block Investment and Partial Benefits of Corporate Control," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 161-185.
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