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Controlling Firms Through the Majority Voting Rule

Physica A, Vol. 355, pp. 509-529, 2005

30 Pages Posted: 28 Feb 2005 Last revised: 19 May 2017

Ariane Chapelle

University College London - Department of Computer Science

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi

Date Written: February 28, 2005

Abstract

Pyramids, cross-ownership, rings and other complex features inducing control tunnelling are frequent in the European and Asian industrial world. Based on the matrix methodology, this paper offers a model for measuring integrated ownership and threshold-based control, applicable to any group of interrelated firms. In line with the theory on pyramidal control, the model avoids the double counting problem and sets the full-control threshold at the conservative - but incontestable - majority level of 50% of the voting shares. Any lower threshold leads to potential inconsistencies and leaves unexplained the observed high level of ownership of many dominant shareholders. Furthermore, the models leads to ultimate shareholders' control ratios consistent with the majority voting rule. Finally, it is applied to the Frère Group, a large European pyramidal holding company known for mastering control leverages.

Keywords: Corporate Control, Corporate Governance, Majority Voting Rule, Pyramidal Ownership

JEL Classification: G32

Suggested Citation

Chapelle, Ariane and Szafarz, Ariane, Controlling Firms Through the Majority Voting Rule (February 28, 2005). Physica A, Vol. 355, pp. 509-529, 2005. Available at SSRN: https://ssrn.com/abstract=672701 or http://dx.doi.org/10.2139/ssrn.672701

Ariane Chapelle (Contact Author)

University College London - Department of Computer Science ( email )

Gower Street
London, WC1E 6BT
United Kingdom
+44(0)7833453854 (Phone)

Ariane Szafarz

Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) & CERMi ( email )

50 Avenue Roosevelt
Brussels 1050
Belgium

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