Governance Conflicts, Ownership, and Firm Value

I introduce a unique database of Voting Trusts- stable coalitions of blockholders- to test for the effects of ownership on agency costs, hence firm value. Voting Trusts have opposite effects on agency costs if blockholders have common outside interests or not. If they do, Trusts worsen the agency problem because members can easily share the costs of expropriation. If they do not, Trusts improve the agency problem due to higher managerial monitoring and blockholder crossmonitoring. I collect all the news of conflicts raised by small shareholders in the listed firms of three European countries from 1995 to 2011. News signal expropriation by blockholders, hence serve as negative shocks to firm value. Voting Trusts cannot be modified at high frequencies. Consistent with theory, Voting Trust firms earn 104-basis-point less negative abnormal returns than other firms at events. The positive effect is completely driven by Trusts whose members have no common outside interests. The effect is robust to using variation within countries and years, and variation in the existence of a Voting Trust within firms that experience multiple conflicts