Excess Control Rights and Corporate Acquisitions

Abstract:     
The typical French listed company exhibits a concentrated ownership structure with the largest shareholder typically holding more voting rights than cash flow rights. This paper studies the acquisitions made by French listed firms over the period 2000 through 2009 and investigates how such ownership characteristics affect acquirer abnormal returns and acquisition activity. Abnormal returns around acquisitions are decreasing as the wedge between voting and cash flow rights increases. This result suggests that controlling shareholders use corporate acquisitions as a means of extracting private benefits at the expense of minority shareholders. The well-documented valuation discount associated with the divergence between voting and cash flow rights could be explained by less efficient acquisitions. The paper also shows that firms whose largest shareholder holds significant excess control rights are less likely to engage in M&A activity. This last finding raises the issue of sample selection bias, which has not been taken into account in earlier studies.

Keywords: Ownership Structure, Excess Control Rights, Corporate Acquisitions, Acquirer Returns, Bidding Likelihood

JEL Classification: G32, G34

Accepted Paper Series