Modeling Horizontal Shareholding With Ownership Dispersion

27 Pages Posted: 3 Nov 2018 Last revised: 28 Aug 2019

See all articles by Duarte Brito

Duarte Brito

New University of Lisbon

Einer Elhauge

Harvard Law School

Ricardo Ribeiro

Universidade Católica Portuguesa, Católica Porto Business School

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP)

Date Written: August 27, 2019

Abstract

The dominant formulation for modeling the objective function of the firm's manager in the presence of horizontal shareholding has been critiqued for producing the result that it may solely reflect the interests of a small number of shareholders even if, collectively, those shareholders do not have full control of the firm. We show that this issue can be avoided with an alternative formulation. This formulation is derived from a probabilistic voting model in which shareholders may differ in their evaluation of the amount of resources the manager will divert from the firm for personal use, which yields the result that the manager maximizes a control-weighted sum of the shareholders' relative (rather than absolute) expected returns.

Keywords: Horizontal Shareholding, Ownership Dispersion, Manager Objective Function, Proportional Control, Banzhaf Control

JEL Classification: L13, L41

Suggested Citation

Brito, Duarte and Elhauge, Einer R. and Ribeiro, Ricardo and Vasconcelos, Helder, Modeling Horizontal Shareholding With Ownership Dispersion (August 27, 2019). Available at SSRN: https://ssrn.com/abstract=3264113 or http://dx.doi.org/10.2139/ssrn.3264113

Duarte Brito

New University of Lisbon ( email )

1099-085 Lisboa, 1099-085
Portugal

Einer R. Elhauge

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Ricardo Ribeiro (Contact Author)

Universidade Católica Portuguesa, Católica Porto Business School ( email )

Rua Diogo Botelho, 1327
Porto, 4169-005
Portugal
+351-22619-6200 (Phone)
+351-22619-6291 (Fax)

Helder Vasconcelos

Universidade do Porto - Faculdade de Economia (FEP) ( email )

Rua Dr. Roberto Frias
s/n
4200-464 Porto, 4200-464
Portugal

HOME PAGE: http://www.fep.up.pt/docentes/hvasconcelos

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