One Share, One Vote: The Empirical Evidence

Adams R., Ferreira D.
ECGI Working Paper, Brussels, 2007

Finance Working Paper No. 177/2007

Abstract:     
We survey the empirical economic literature on disproportional ownership, i.e. the use of mechanisms that separate voting rights from cash flow rights in corporations. Our focus is both on explicit mechanisms that allow some shareholders to acquire control with less than proportional economic interest in the firm (dual class equity structures, stock pyramids, cross-ownership, etc.) and on implicit ways of creating a wedge between voting and cash flow rights (dispersed share ownership, ESOPs, fiduciary voting, etc.). We provide a broad overview of different areas in this literature and highlight problems of interpretation that may arise because of empirical difficulties. While the literature has provided many important insights into the causes and consequences of disproportional ownership, we argue that it has not yet provided a satisfactory answer to the question of whether disproportional ownership creates social costs by destroying firm value. This is partly due to measurement problems and the treatment of endogeneity, and partly because empirical findings using different samples and methods are often in conflict with each other. We outline potentially promising areas for future research.