One share - one vote : a european rule?

In this paper, I tackle the question whether one share - one vote should become a European law rule. I examine, first of all, the economic theory concerning one share - one vote and its optimality, and the law and economics literature on dual class recapitalizations and other deviations from one share - one vote. I also consider the agency costs of deviations from one share - one vote and examine whether they justify regulation. I subsequently analyze the rules implementing the one share - one vote standard in the US and Europe. In particular, I analyze the self-regulatory rules of US exchanges, the relevant provisions of the European Takeover Directive (including the well known break-through rule), and the European Court of Justice's position as to golden shares (which also are deviations from the one share - one vote standard). I conclude that one share - one vote is not justified by economic efficiency, as also confirmed by comparative law. Also the European breakthrough rule, which ultimately strikes down all deviations from one share - one vote, does not appear to be well grounded. Only transparency rules appear to be justified at EU level as disclosure of ownership and voting structures serves a pricing and governance function, while harmonisation of the relevant rules reduces transaction costs in integrated markets

Corporate governance and the protection of investors: A comparative and critical perspective on the legal responses to the ultimate concern and on potential developments

This paper, after reviewing the mechanisms for the direct and indirect protection of minority shareholders in the US, France, Germany and the UK, assesses these machanisms in light of a "subjective" aspect of minority shareholders protection (protection of weaker shareholders vs. stronger shareholders and/or management) and in light of an "objective" aspect of minority shareholders protection (conditions for the long-term success of the company) that can both be extrapolated from the OECD Principles. In this assessment, the paper, after evidencing the factors pushing towards formal convergence both within the EC and at the wider international level, and the need for functional convergence, calls into discussion the usefulness itself of international comparisons based on the formal rules in place in one jurisdiction commonly used as a yardstick, and suggests that a new minority shareholders protection index could be identified, taking into consideration both the subjective aspect and the objective aspect of investors protection

Security-voting structure and bidder screening

This paper analyzes how non-voting shares affect the takeover outcome in a single-bidder model with asymmetric information and private benefit extraction. In equilibrium, the target firm’s security-voting structure influences the bidder’s participation constraint and in response the shareholders’ conditional expectations about the post-takeover share value. Therefore, the structure can be chosen to discriminate among bidder types. Typically, the socially optimal structure deviates from one share - one vote to promote all and only value-increasing bids. As target shareholders ignore takeover costs, they prefer more takeovers and hence choose a smaller fraction of voting shares than is socially optimal. In either case, the optimal fraction of voting shares decreases with the quality of shareholder protection and increases with the incumbent manager’s ability. Finally, shareholder returns are higher when a given takeover probability is implemented by (more) non-voting shares rather than by (larger) private benefits

Corporate control and governance practices in Russia

In Russia, the problem of corporate governance has become a frequent subject for discussion. Stories now abound about questionable corporate governance practices, such as share dilution, asset stripping, transfer pricing, complex ownership structures, limiting shareholders from attending the shareholders meetings. These practices, which have come to constitute corporate governance abuses to company shareholders, are considered to be factors adversely affecting the investment climate. At first glance, these non-transparent practices are a collection of independent cases of managerial malfeasance that are abusive to investors. However, there seems to be an internal logic in these widely used practices, as they have been functional for Russian corporates to navigate through circumstances characterised by an imperfect formal framework. The aim of this paper is to analyse such functionalities of the practices in light of an evolution of corporate Russia. Taking Yukos Oil Company as a case study, the paper demonstrates that resorting to these practices was instrumental in a process of ensuring corporate survival and strengthening market position by establishing a coherent corporate entity. This paper emphasises that these practices represent rational and logical responses by economic agents to the prevailing conditions shaped by policy choices, political and macroeconomic environment, and institutions

Endogenous Market Institutions: Experimental Evidence

A wide variety of market institutions exist in the field and on the Internet. Examples are English auctions and two-sided marketplaces like the double auction where both buyers and sellers initiate prices. This paper investigates how the emergence of (different) market institutions is shaped by buyers’ and sellers’ institutional preferences. The experimental evidence reveals that both buyers and sellers in the main prefer market institutions that restrict the ability to make price offers to their side of the market. However, when buyers and sellers are allowed to express both first and second choices, the double auction emerges as the most viable market institution.Market institutions, institutional preferences, voting rules, experimental economics

Path dependence or convergence? The evolution of corporate ownership around the world

We offer a theory that sheds light on the current debate over whether the form of corporate ownership converges to the Berle-Means image. Our analytical results are threefold. First, legal rules and firm-specific protective arrangements are complementary. Secondly, corporate ownership patterns can be convergent or path dependent depending on the relative importance of these protective arrangements. We predict, for example, diffuse stock ownership in countries that impose legal limits on blockholders’ power to expropriate minority investor rights. Thirdly, we find that convergence toward diffuse share ownership is a movement towards the social optimum. Our empirical results suggest a case for the co-existence of path dependence and functional convergence (convergence to the diffuse form of share ownership through cross-listings on U.S. stock exchanges that impose more stringent disclosure and listing requirements). These results have implications for the design of executive compensation, the case for institutional investor activism and the proposal to increase shareholder power

Voting Rights, Share Concentration, and Leverage at Nineteenth-Century US Banks

Studies of corporate governance are concerned with two features of modern shareholding: diffuse ownership and the resulting separation of ownership and control, which potentially leads to managerial self-dealing; and, majority shareholding, which potentially mitigates some managerial self-dealing but opens the door for the expropriation of minority shareholders. This paper provides a study of the second issue for nineteenth-century US corporations. It investigates two related questions. First, did voting rules that limited the control rights of large shareholders encourage diffuse ownership? It did. Second, did diffuse ownership systematically alter bank risk taking? It did. Banks with less concentrated ownership followed policies that reduced liquidity and bankruptcy risk.

Corporate governance in Turkey: implications for investments and growth

Background Paper for Turkey’s Investment Climate Assessment 200

Corporate governance systems in Europe : differences and tendencies of convergence ; Crafoord lecture

The corporate governance systems in Europe differ markedly. Economists tend to use stylized models and distinguish between the Anglo-American, the German and the Latinist model.1 In this view, for instance, the Austrian, Dutch, German, and Swiss systems are said to be variations of one model. For lawyers the picture is of course, much more detailed as particular rules may vary even where common principles prevail. Many comparative studies on these differences have been undertaken meanwhile.2 I do not want to add another study but to treat a different question. Are there as a consequence of growing internationalization, globalization of markets and technological change, also tendencies of convergence of our corporate governance systems? My answer will be in two parts. As corporate governance systems are traditionally mainly shaped by legislation, the first part will analyze the influence of the economic and technological change on the rule-setting process itself. How does this process react to the fundamental environmental change? That includes a short analysis of the solution of centralized harmonizing of company law within the EU as well as the question of whether EU-wide competition between national corporate law legislators can be observed or be expected in the future. The second part will then turn to the national level. It deals with actual tendencies of convergence or, more correctly, of approach by the German corporate governance system to the Anglo-American one

How Hard Is It to Control an Election by Breaking Ties?

We study the computational complexity of controlling the result of an election by breaking ties strategically. This problem is equivalent to the problem of deciding the winner of an election under parallel universes tie-breaking. When the chair of the election is only asked to break ties to choose between one of the co-winners, the problem is trivially easy. However, in multi-round elections, we prove that it can be NP-hard for the chair to compute how to break ties to ensure a given result. Additionally, we show that the form of the tie-breaking function can increase the opportunities for control. Indeed, we prove that it can be NP-hard to control an election by breaking ties even with a two-stage voting rule.Comment: Revised and expanded version including longer proofs and additional result