Blockholder Power, Shareholder Conflicts and Legal Protection: Evidence from Tax Preferences and Payout Decisions

66 Pages Posted: 18 Mar 2012 Last revised: 29 Aug 2014

See all articles by Christoph Kaserer

Christoph Kaserer

Technische Universität München (TUM)

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Oliver Trinchera

Technische Universität München

Date Written: August 1, 2013

Abstract

Tax codes regularly create conflicts of interests between small and large shareholders with respect to the payout decision of firms. We use this fact to study (i) whether firm behavior reflects preferences of blockholders and (ii) the effectiveness of minority shareholder protection on blockholders’ power to promote corporate behavior at the expense of minority shareholders. Based on an extensive data set covering 3,944 European firms over the 1999-2008 period, we find that payout behavior strongly reflects tax preferences of a firm’s largest shareholder. However, as minority shareholder protection increases tax preferences of minority shareholders are more likely to be partially reflected in the payout decision. Our results are stable against a battery of robustness tests. This includes endogeneity issues, which may be relevant because of the well-known clientele effect. Thus, our analysis documents that firm behavior (i) is affected by blockholder preferences and (ii) legal minority shareholder protection effectively restricts the power of blockholders in case of conflicting interest among shareholders.

Keywords: Corporate Governance, Shareholder Protection, Ownership structure, Payout Policy, Taxes

JEL Classification: G15, G18, G30, G32, G35, H24, H25

Suggested Citation

Kaserer, Christoph and Rapp, Marc Steffen and Trinchera, Oliver, Blockholder Power, Shareholder Conflicts and Legal Protection: Evidence from Tax Preferences and Payout Decisions (August 1, 2013). 27th Australasian Finance and Banking Conference 2014 Paper. Available at SSRN: https://ssrn.com/abstract=2024014 or http://dx.doi.org/10.2139/ssrn.2024014

Christoph Kaserer (Contact Author)

Technische Universität München (TUM) ( email )

Arcisstr. 21
Munich, D-80290
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

Marc Steffen Rapp

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

Oliver Trinchera

Technische Universität München ( email )

Arcisstrasse 21
Munich, 80333
Germany
+49 89 289 25489 (Phone)
+49 89 289 25488 (Fax)

HOME PAGE: http://www.cefs.de

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