Note on Measuring Controlling Shareholders' Ownership, Voting, and Control Rights

Abstract

Founders and their families can raise equity without relinquishing control of their companies, through the use of mechanisms such as dual-class stock, pyramidal ownership, voting agreements, and disproportionate board representation. The use of these mechanisms in publicly traded companies is widespread throughout the world, and in the United States. Understanding how the various mechanisms contribute to the separation between economic ownership and control is important for the individuals who set them up because the choice among these mechanisms impacts firm value. It is also important for minority shareholders in these companies and for regulators, for reasons of transparency and investor protection.