Modeling Horizontal Shareholding with Ownership Dispersion

Duarte Brito, Einer Elhauge, Ricardo Ribeiro and Helder Vasconcelos
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Einer Elhauge: Harvard Law School

No 1, Working Papers de Economia (Economics Working Papers) from Católica Porto Business School, Universidade Católica Portuguesa

Abstract: The dominant formulation for modeling the objective function of managers of competing firms with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided (while maintaining the remaining features of the dominant approach)with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders' relative returns.

Keywords: Horizontal Shareholding; Ownership Dispersion; Manager Objective Function; Proportional Control; Banzhaf Control (search for similar items in EconPapers)
JEL-codes: L13 L41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2018-10
New Economics Papers: this item is included in nep-bec, nep-gth and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cap:wpaper:012018

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