Posted: 18 May 2001
We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders.
Keywords: Closely held corporations; Ownership structure; Control dilution; Controlling coalition; One-share - one vote
JEL Classification: G32, G34
Suggested Citation: Suggested Citation
Bennedsen, Morten and Wolfenzon, Daniel, The Balance of Power in Closely Held Corporations. Journal of Financial Economics, Vol. 58, No. 1-2, January 1, 2000. Available at SSRN: https://ssrn.com/abstract=251877