European Corporate Governance: Trading off Liquidity against Control
Free University of Brussels (VUB/ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Université Libre de Bruxelles (ULB) - Solvay Brussels School of Economics and Management; European Corporate Governance Institute (ECGI)
European Economic Review
Globalisation and privatisation have created a demand for liquid stock markets in continental Europe. As a result, European companies, blockholders and governments are faced with a corporate governance dilemma. Liquidity requires dispersed share ownership. When control is relinquished in order to obtain more liquidity, a lack of shareholder oversight results. When liquidity is sacrificed in favour of control, stock markets cannot flourish. When liquidity is combined with control, by detaching voting rights from cash-flow rights, monitoring incentives are distorted. When voting power is capped, minorities and insiders are protected. This paper shows how European companies trade off liquidity against control. When liquidity is needed explicitly, for example for stock price index inclusion, a variety of legal devices is used to keep voting power concentrated. From a European perspective it appears vital to add the quest for liquidity, and the possibility of obtaining it while holding 100% of the voting rights, to the corporate governance debate.
Note: This is a description of the article and not the actual abstract.
JEL Classification: G3, K2Accepted Paper Series
Date posted: May 25, 1999
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