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Abstract In this paper, we examine whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. We extend extant corporate governance research by addressing the effects of multiple large shareholders on firm's cost of equity capital-a proxy for firm's information quality. Using data for 1,165 listed corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. We also find that the voting rights, the relative voting size (vis-à-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. Interestingly, we uncover that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry evident in cost of equity financing, perhaps to sidestep deficiencies in the external institutional environment. May 2008 JEL classification: G32; G34 Key words: corporate governance, multiple large shareholders, cost of equity ____________________________________ * We thank Narjess Boubakri, Sadok El Ghoul, and Oumar Sy for insightful comments. We appreciate generous financial support from the Social Sciences and Humanities Research Council of Canada and outstanding research assistance from Walid Saffar. Multiple Large Shareholders, Control Contests, and Implied Cost of Equity Abstract In this paper, we examine whether the presence of multiple large shareholders alleviates firm's agency costs and information asymmetry embedded in ultimate ownership structures. We extend extant corporate governance research by addressing the effects of multiple large shareholders on firm's cost of equity capital-a proxy for firm's information quality. Using data for 1,165 listed corporations from 8 East Asian and 13 Western European countries, we find evidence that the implied cost of equity decreases in the presence of large shareholders beyond the controlling owner. We also find that the voting rights, the relative voting size (vis-à-vis the first largest shareholder) and the number of blockholders reduces firm's cost of equity. Interestingly, we uncover that the presence of multiple controlling shareholders with comparable voting power lowers firm's cost of equity. We also find that the identity of the second largest shareholder is important in determining the risk of corporate expropriation in family-controlled firms. Our regional analysis reveals that, mainly in East Asian firms, multiple large shareholders structures exert an internal governance role in curbing private benefits and reducing information asymmetry evident in cost of equity financing, perhaps to sidestep deficiencies in the external institutional environment. May 2008 JEL classification: G32; G34

We examine 54 large block transactions, and find that private benefits, as a proportion of firm's market value, decrease with firm's size, leverage and profitability, and increase when an individual or family control the firm. There is also some evidence that private benefits are larger when the wedge between the control group's proportion in vote and proportion in equity increases. Interestingly, average private benefits are almost identical when we switch from estimation based on buyer rationality to estimation based on seller-rationality. Last, our findings suggest that when the control group comprises a few partners, private benefits are divided according to each partner proportion in the control group (rather than according to each partner power within the control group).

We investigate the capital structure dynamics of a panel of 766 firms from five Western Europe

Conventional wisdom suggests that large outside shareholders help to restrict insider opportunism and, hence, are more beneficial when the agency problem is more severe. Thus, if a firm chooses its ownership structure so as to minimize the agency cost, firms with more potential for expropriation of shareholders by insiders, are more likely to have an outside blockholder. Our model predicts that under asymmetric information about the entrepreneur’s ability/propensity to extract private benefits the outcome may be the opposite: ownership structures with an outside blockholder are chosen by the entrepreneurs that are less capable/willing to extract private benefits. Selling a large stake to an outside blockholder who would monitor the entrepreneur allows a “good ” entrepreneur to separate himself from a “bad ” one. The result holds regardless of whether an outside blockholder acts for the benefit of all shareholders or colludes with the entrepreneur for sharing private benefits. Our model suggests that the often documented positive relationship between the presence of an outside blockholder and firm value may arise not due to a direct effect of blockholder monitoring, but because entrepreneurs with low propensity to self-deal choose to attract an outside blockholder. Hereby, our work contributes to the endogeneity debate in the ownership-performance literature. 1

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.

an um t ef ind tor p rship a (La Por ates tw: an i of ownership concentration having provided better managerial incentives; they interpret the negative correlation between dispro-portional ownership structure and firm value as evidence of en-trenched owners. The main contribution of the present paper is to establish a more direct link between the value discount of dis-fects and, thereby, control for effects that are constant at the country level and likely to correlatewith the variables of interest. One prom-inent example of such an effect is investor protection,which both af-fects ownership concentration and firm value (La Porta et al., 2000, 2002). Empirically, we find large and significant value discounts of disproportional ownership structures in Europe and confirm that thisdiscount ishigher in (a) familyfirms, (b)firmswith lowcashflow concentration, and (c) industries with high amenity values. Our analysis also provides three additional insights into the consequences of disproportional ownership structures. First, we find that dual class shares are associated with a significantly larger

Previous studies on the agency model of the firm extensively recognize the managerial ownership and external debt as important tools in mitigating agency conflicts and enhancing firm value. They also find that increase in the external monitors, for example the institutional investors, can actually play a useful role in limiting agency problems in the firm. This paper, using 1351 companies from UK between 2004 and 2008 explores the impact of institutional holdings on managerial ownership and debt policy in an integrated framework by using a simultaneous equations estimation procedure (2SLS). The findings show that there is a significant negative relationship between institutional ownership and corporate leverage. This escalates the agency costs of debt because debt holders increase the rate of borrowing when they realize that institutional ownership increases in such a way as to jeopardize their wealth because using the control power they accumulate from their ownership, institutional shareholders may engage in riskier projects.In addition, corporate leverage is also governed by managerial ownership and revealed a statistically significant negative relationship. At the same time, debt appears as a key governance variable as it moderates private benefits extraction from corporate free cash flows as reported in the results of this paper that companies with higher average debt ratios accumulate less free cash flows as opposed to companies with lower average debt ratios.

This study analyzes the identity of non-controlling large shareholders and investigates their effects on firm value in the Chinese market. We find that when the non-controlling large shareholders have prior relationship with the controlling shareholders, firm values are lower. As well, higher ownership stakes and board representation by relational non-controlling large shareholders are associated with lower firm value. Such an effect is more pronounced when agency conflicts between majority shareholders and minority shareholders are greater. Our findings suggest that it is important to consider the identities of non-controlling shareholders when studying the effects of multiple large shareholders on corporate governance or firm value. Furthermore, we find that the non-controlling large shareholders play a detrimental role in an emerging market.

The value of political connections when accessing the IPO market In this study we examined the value of political connections in firms ’ access to the IPO market using a sample of Chinese IPO applications from 2006 to 2010. We found a positive relationship between political connections and the probability of IPO approval, and this relationship is strengthened in entrepreneurial firms and weakened in those firms controlled by the state. We further provide evidence that entrepreneurial firms with a disproportional ownership structure and without high technology benefit more from political connections. Our additional tests showed that entrepreneurial (state) firms with political connections also performed better (worse) than firms without. We argue that in emerging markets where the institutional legal system is weak, the value of political connections exists not only in private financial financing markets, but also in public equity markets.