The balance of power in closely held corporations

The balance of power in closely held corporations We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

The balance of power in closely held corporations

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Publisher
Elsevier
Copyright
Copyright © 2000 Elsevier Science B.V.
ISSN
0304-405x
DOI
10.1016/S0304-405X(00)00068-4
Publisher site
See Article on Publisher Site

Abstract

We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders.

Journal

Journal of Financial EconomicsElsevier

Published: Jan 1, 2000

References

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