The Market Value of Differential Voting Rights in Closely Held Corporations

Recent advances in the theory of the firm suggest an important role for the market for corporate control. Along with competition in the managerial labor market, various monitoring and bonding mechanisms, and managerial compensation schemes, competition for the right to determine or influence investment and financing decisions can play a role in disciplining a firm's managers or decision makers. Most notably, Manne (1965) and Fama (1978) view the market for corporate control as facilitating the allocation of corporate assets to their highest valued use. That is, tender offers, merger bids, and proxy contests enable outsiders to obtain control and capture gains from implementing an improved set of investment and financing decisions. Consequently, the theory of the corporation implies that the property rights associated with corporate control are valuable. Several previous studies have provided direct or indirect evidence on the value of control. These include Bradley (1980), Meeker and Joy (1980), Bradley, Desai, and Kim (1983), Dodd and Warner

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