Complex Ownership Structures and Corporate Valuations.” Review of Financial Studies 21

The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: 100 % small shareholders or one large, controlling owner combined with small shareholders. In this paper, we question the empirical validity of this dichotomy. In fact, one-third of publicly listed firms in Europe have multiple large owners, and the market value of firms with multiple blockholders differs from firms with a single large owner and from widely held firms. Moreover, the relationship between corporate valuations and the distribution of cash-flow rights across multiple large owners is consistent with the predictions of recent theoretical models. (JEL G32, G34) The bulk of corporate governance theory examines the agency problems that arise from two extreme ownership structures: (i) 100 % small shareholders or (ii) one large, controlling owner combined with many small shareholders (see Shleifer and Vishny, 1997, for a review). In the first case, each small share-holder lacks the incentives or contractual mechanisms to align the interests of managers with those of shareholders. Consequently, managers may exert sub-stantial discretion over firm decisions and divert corporate resources for private gain (Jensen and Meckling, 1976; Grossman and Hart, 1980). At the other extreme, the large shareholder either directly manages the firm or internalizes the benefits from monitoring managers, which aligns managerial interests with those of the large shareholder. This, however, creates a different agency prob-lem. The controlling owner may expropriate private benefits at the expense of other shareholders, as stressed by Shleifer and Vishny (1986); Burkart, Gromb