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Corporate Control and the Stock Market

By Stefano Demichelis and Klaus Ritzberger

Abstract

This paper studies a general equilibrium model with an investor controlled firm. Shareholders can vote on the firm’s production plan in an assembly. Prior to that they may trade shares on the stock market. Since stock market trades determine the distribution of votes, trading is strategic. There is always an equilibrium, where share trades lead to owners deciding for competitive behavior, but there may also be equilibria, where monoplistic behavior prevails.Corporate governance, general equilibrium, objective function of the firm, shareholder voting, stock markets.

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