Common Stock Ownership, the Value of Votes, and Private Benefits of Control
64 Pages Posted: 27 Sep 2017
Date Written: August 1, 2017
I develop a quantitative model where the voting feature of common stock determines the outcome of a proxy contest that may affect a manager's private benefits of control. The value of votes increases in the incumbent manager's private benefits of control, asset growth, and volatility, and information quality. The distribution of common stock ownership among sparse shareholders and blockholders affects the value of votes non-monotonically and non-linearly. A numerical illustration based on the median public U.S. firm from 1996 to 2013 shows that with incumbent private benefits around 15% of cash ow, during a proxy contest the voting component comprises 1.09% of the total common stock value to outside blockholders. Aggregating the sparse ownership into an additional blockholder decreases the value of votes to other blockholders by 0.69% but increases the probability of a successful value-increasing takeover by 2%.
Keywords: Proxy Contest, Voting, Private Benefits, Ownership Structure
JEL Classification: G32, G34
Suggested Citation: Suggested Citation