Sharing of Control as a Corporate Governance Mechanism

Armando R. Gomes, Walter Novaes
2001 Social Science Research Network  
This paper identifies a new corporate governance mechanism: sharing control. We show that bargaining problems among multiple controlling shareholders may prevent inefficient investment decisions that harm minority shareholders. The same bargaining problems may block efficient investment decisions, though. By solving this trade-off, we show that the likelihood that shared control is efficient increases with three firm characteristics: overinvestment problems, the cost of verifying cash flows,
more » ... ying cash flows, and financing requirements. The model provides testable implications for the role that large shareholders play in corporate governance, contrasting shared control and monitoring as alternative governance mechanisms.
doi:10.2139/ssrn.277111 fatcat:zo32xcqswvci3p2duelumiughq