Modeling Horizontal Shareholding With Ownership Dispersion

21 Pages Posted: 3 Nov 2018 Last revised: 17 Nov 2018

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: October 26, 2018

Abstract

The dominant formulation for modeling the objective function of managers of competing firms with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed and the interests of horizontal shareholders in the different firms coincide, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders' relative 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 (October 26, 2018). 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

Register to save articles to
your library

Register

Paper statistics

Downloads
30
Abstract Views
270
PlumX Metrics