Multiple Large Shareholders, Control Contests, and Implied Cost of Equity

46 Pages Posted: 13 Oct 2008

See all articles by Najah Attig

Najah Attig

Saint Mary's University - Department of Finance & Management Science

Omrane Guedhami

University of South Carolina - Moore School of Business

Dev R. Mishra

University of Saskatchewan - Edwards School of Business

Date Written: October 10, 2008

Abstract

In this paper, we examine whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. We extend extant corporate governance research by addressing the effects of multiple large shareholders on firm's cost of equity capital - a proxy for firm's information quality. Using data for 1,165 listed corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. We also find that the voting rights, the relative voting size (vis-a-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. Interestingly, we uncover that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry evident in cost of equity financing, perhaps to sidestep deficiencies in the external institutional environment.

Keywords: corporate governance, multiple large shareholders, cost of equity

Suggested Citation

Attig, Najah and Guedhami, Omrane and Mishra, Dev R., Multiple Large Shareholders, Control Contests, and Implied Cost of Equity (October 10, 2008). AFFI/EUROFIDAI, Paris December 2008 Finance International Meeting AFFI - EUROFIDAI. Available at SSRN: https://ssrn.com/abstract=1282129 or http://dx.doi.org/10.2139/ssrn.1282129

Najah Attig

Saint Mary's University - Department of Finance & Management Science ( email )

Halifax, Nova Scotia B3H 3C3
Canada
902-491-8679 (Phone)

Omrane Guedhami

University of South Carolina - Moore School of Business ( email )

Columbia, SC
United States

Dev R. Mishra (Contact Author)

University of Saskatchewan - Edwards School of Business ( email )

Edwards School of Business
Saskatoon, Saskatchewan S7N 5A7
Canada
306-966-8457 (Phone)
306-966-2515 (Fax)

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