Deviations from 'One Share, One Vote' Can Be Optimal: An Entrepreneur's Point of View

29 Pages Posted: 23 Nov 2003

See all articles by Tom Vinaimont

Tom Vinaimont

Nazarbayev University - Graduate School of Business

Piet Sercu

FEB at KU Leuven

Date Written: January 1, 2008


In light of renewed interest in the relation between shareholder protection and control arrangements, we thoroughly review the optimality of one-share one-vote (1S1V). The issue is what set of rules the entrepreneur will put in place, re take-overs, so as to maximize the IPO value of the firm. The structural changes we admit relative to the original setting of Grossman and Hart (1988) and Harris and Raviv (1989) are that both incumbent and rival management can have private benefits rather than just one of them, and that bids are unconditional offers for all shares. We first explore the set-up where the entrepreneur-founder knows the characteristics of the incumbent and rival management team and extend the analysis further to the imperfect-foresight problem where the entrepreneur-founder only knows the distribution from which the rival will be drawn. We find that, from the founder's perspective, 1S1V is never optimal with imperfect foresight, and its optimality is surprisingly rare even with perfect foresight. We also explain why governments rarely step in: from simulations we find that the social impact of the charter choice seems to be far smaller than the private impact (on IPO value or post-take-over value). Lastly, we go beyond the dual-class case, explaining the role and usefulness of multiple-class structures.

Keywords: Corporate Control, Security Design, Takeovers

JEL Classification: G32, G34

Suggested Citation

Vinaimont, Tom and Sercu, Piet M. F. A., Deviations from 'One Share, One Vote' Can Be Optimal: An Entrepreneur's Point of View (January 1, 2008). AFA 2004 San Diego Meetings; KULeuven DTEW Working Paper, Available at SSRN: or

Tom Vinaimont (Contact Author)

Nazarbayev University - Graduate School of Business ( email )


Piet M. F. A. Sercu

FEB at KU Leuven ( email )

Naamsestraat 69
Faculty of Economics and Business
Leuven, 3000
+32 16 32 67 56 (Phone)
+32 16 32 67 32 (Fax)

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