WEAK SHAREHOLDER RIGHTS: A PRODUCT MARKET RATIONALE
In product markets where customers care about firm survival, strong shareholder power can have detrimental implications on firm performance by affecting the likelihood that the firm is acquired. We use a framework where firms choose their level of shareholder rights after comparing the costs of takeover vulnerability, i.e., the loss of customers, with the synergistic benefits of an acquisition. This generates two testable implications. First, it is optimal to have weaker shareholder rights in competitive markets. Second, this link between competition and shareholder rights is stronger in industries characterized by long-term customer relationships. Using data on shareholder rights in the corporate charter, we empirically find that indeed firms have weaker shareholder rights in competitive industries, especially in industries where customers tend to have a long-term relationship with the firm. We also document that weak shareholder rights are associated with worse performance only in non-competitive industries. Finally, we discuss the implications of this framework for the design of various governance mechanisms. In conclusion, the paper provides a rationale for why shareholders themselves might not want strong shareholder rights.
K.J. MARTIJN CREMERS VINAY B. NAIR URS PEYER
International Center of Finance at Yale University Wharton School at the University of Pennsylvania
国际会议
成都
英文
1-53
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）