Contror Contests Among Large Shareholders In Disproportional Ownership Condition

The separation of ownership and voting rights of the controlling shareholder is widely documented in the modern literature on corporate governance. There are explicit mechanisms that allow some shareholders to acquire control with less than proportional economic interest in the firm, such as dual-class equity structures, stock pyramids, cross-ownership, etc., which provides large controlling shareholders with incentives to derive private benefits that benefit themselves at the expense of other shareholders. With weak incentives and little power to engage in monitoring activities, minority shareholders are not willing to pay for shares, which lowers the value of all companies and raises the cost of finance. Thus, it limits the ability of such firms to fund attractive investment projects.However, the bulk of extant studies have been limited by an implicit assumption that overlooks the potential role of other large shareholders in curbing expropriation. Nowadays, the control relationship among large shareholders has been focused on. Recent theoretical developments have expanded the discussion of firm’s agency costs to address the potential economic effects of the existence of large block holders, beyond the controlling shareholder. Some hold the idea that multiple lager shareholders (MLS) could coalesce to monitor the behavior of controlling shareholder, which offer a neat signal for investors. Alternatively, under the alignment-of-interests hypothesis, MLS can present an opportunistic structure for coercive voting, where block holders would find it mutually valuable to collude to extract divisible private benefits of control. Other researches include both views of the role of MLS in corporate governance, arguing that bargaining problems between large shareholders who have the potential to either obstruct projects harming minority shareholders or result in corporate paralysis if profitable projects are denied. By solving this tradeoff, some researchers find that MLS are efficient in situations where the likelihood of minority shareholders’expropriation is high and financing requirements are large. These divergent perspectives imply that whether or not MLS serve a monitoring role in mitigating the agency problems that beset concentrated control remains an open question. In addition, whether or not the efficient monitoring hypothesis of MLS outweighs any associated negative effects is a priori unclear.Our paper complements and extends this line of studies to include the impact of MLS, a proxy for firm’s internal governance, on cost of equity capital for a unbalanced panel of813listed corporations. In estimating firms’cost of equity capital, we employ three variations of accounting-based residual income valuation models. After controlling for other potential determinants of the cost of capital, our findings for the full sample suggest that the presence, the number and the control size of multiple large block holders-beyond the largest shareholder-are associated with significantly higher cost of equity estimates, not lending support to the efficient-monitoring role.Our paper complements and extends this line of studies to include the impact of MLS, a proxy for firm’s internal governance, on cost of equity capital for a unbalanced panel of813listed corporations. In estimating firms’cost of equity capital, we employ three variations of accounting-based residual income valuation models. After controlling for other potential determinants of the cost of capital, our findings for the full sample suggest that the presence, the number and the control size of multiple large block holders-beyond the largest shareholder-are associated with significantly higher cost of equity estimates, not lending support to the efficient-monitoring role. We also find that uneven distribution of control rights among large shareholders reduces the effectiveness of MLS monitoring. The presence of multiple controlling shareholders with comparable voting power enhances firm’s agency costs and cost of equity.As for the innovation, we use Shapley value to stand for the actual control power of large shareholders. The past has generally followed the one share one vote (1S1V) principle, but in the existing voting mechanism, we find that the actual control power of large shareholders deviated from the1S1V hypothesis, especially for the first two. Our findings are insightful from this point of view as we suggest that except for the "control-enhancing mechanisms"(CEMs). There is a huge gap between voting rights and the control power.