Shareholder-Manager Contracts in Public Companies
54 Pages Posted: 3 Oct 2017 Last revised: 9 Apr 2018
Date Written: March 30, 2018
Shareholders in public firms are commonly assumed to be these firms' residual claimants, that is, agents without contractual claims against the firm. I find that in practice this is not the case for all shareholders. Many large shareholders and managers write binding bilateral shareholder agreement contracts (SACs) that can specify clauses pertaining to financing, trading, directorships, dividends, joint ventures, and private information sharing. From 1996 to 2015, 1,637 of the 18,927 large-percentage block investments in my sample involve SACs, and the use of SACs more than doubles over this period. SACs are also more prevalent in firms with increased shareholder-manager agency conflicts, which suggests that SACs arise in part to address these conflicts. Overall, I conclude that SACs have important but understudied effects on shareholders' and managers' action spaces.
Keywords: Corporate Governance, Financial Contracting, Shareholder Agreements
JEL Classification: D21, G30, G32, G34, K22, L22
Suggested Citation: Suggested Citation