Multiple Blockholders and Firm Value: A Simulation Analysis

Annalisa Russino ()
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Annalisa Russino: Department of Economics, Business and Statistics, University of Palermo, Viale delle Scienze Ed. 13, 90128 Palermo, Italy

IJFS, 2023, vol. 11, issue 2, 1-15

Abstract: In this paper, we analyse the relationship between the distribution of ownership and firm value in the presence of multiple blockholders. In recent years, the topic has attracted the attention of many scholars. Yet, the empirical evidence on the relationship between the distribution of ownership among large shareholders and firm value has been non-conclusive and contradictory. We focus on the interaction between a controlling block of shareholders and a non-controlling block that can monitor the largest controlling block. We develop and simulate a simple model combining the two effects related to the presence of additional blockholders that can monitor the largest controlling block of shareholders. The first concerns the incentives of the controlling blockholders to expropriate other shareholders (the alignment effect); the second concerns the incentives for non-controlling blockholders to exercise monitoring activities (the monitoring effect). We examine the influence of the distribution of ownership between controlling and non-controlling shareholders on the total amount of company resources diverted to provide private benefits to controlling shareholders. Since net firm value is decreasing in the amount of company resources diverted, our analysis sheds light on the relationship between the ownership structure and firm value. We show that, in the presence of multiple blockholders, the relationship between ownership concentration and firm value may change depending on the relative size of the shareholders and the relative size of private benefits of control. Our results help in understanding the variety of shapes that have been empirically detected, and shed some light on the conditions that make optimal diversions, as a function of the level of ownership concentration, monotone (increasing and decreasing) or non-monotone.

Keywords: corporate governance; ownership structure; multiple blockholders; principal–principal conflicts; valuation (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2023
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