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Modeling Horizontal Shareholding with Ownership Dispersion

Author

Listed:
  • Duarte Brito

    (Universidade Nova de Lisboa, Faculdade de Ciências e Tecnologia | Center for Advanced Studies in Management and Economics)

  • Einer Elhauge

    (Harvard Law School)

  • Ricardo Ribeiro

    (Universidade Católica Portuguesa, Católica Porto Business School)

  • Helder Vasconcelos

    (Universidade do Porto, Faculdade de Economia and Center for Economics and Finance)

Abstract

The dominant formulation for modeling the objective function of managers of competing firms with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided (while maintaining the remaining features of the dominant approach)with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders' relative returns.

Suggested Citation

  • Duarte Brito & Einer Elhauge & Ricardo Ribeiro & Helder Vasconcelos, 2018. "Modeling Horizontal Shareholding with Ownership Dispersion," Working Papers de Economia (Economics Working Papers) 01, Católica Porto Business School, Universidade Católica Portuguesa.
    • Handle: RePEc:cap:wpaper:012018
    as

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    References listed on IDEAS

    as
    1. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
    2. Jacob P. Gramlich & Serafin J. Grundl, 2017. "Estimating the Competitive Effects of Common Ownership," Finance and Economics Discussion Series 2017-029, Board of Governors of the Federal Reserve System (U.S.).
    3. Brito, Duarte & Osório, António & Ribeiro, Ricardo & Vasconcelos, Helder, 2018. "Unilateral effects screens for partial horizontal acquisitions: The generalized HHI and GUPPI," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 127-189.
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    Citations

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    Cited by:

    1. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2019. "Can partial horizontal ownership lessen competition more than a monopoly?," Economics Letters, Elsevier, vol. 176(C), pages 90-95.
    2. Brito, Duarte & Ribeiro, Ricardo & Vasconcelos, Helder, 2020. "Overlapping ownership, endogenous quality, and welfare," Economics Letters, Elsevier, vol. 190(C).
    3. Lysle Boller & Fiona Scott Morton, 2020. "Testing the Theory of Common Stock Ownership," NBER Working Papers 27515, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Horizontal Shareholding; Ownership Dispersion; Manager Objective Function; Proportional Control; Banzhaf Control;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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