{"title":"The Distribution and Valuation of Corporate Control","authors":"Elli Kraizberg, John L. Teall","doi":"10.2174/1874915100902010028","DOIUrl":null,"url":null,"abstract":"Direct empirical valuation of corporate control has been hampered by the absence of systematic observable data and verifiable equilibrium models. This paper provides a new analytical framework for valuing voting rights, linking the value of control to the distribution of shares among shareholders along with corresponding Shapley and Owen Power In- dices. The new framework presented here transforms values generated by power indices into game theory/equilibrium fi- nancial values We illustrate our model using numerical methodologies based on share prices paid by agents seeking to control firms as well as market prices paid by shareholders who simply defer control to other agents. The paper also de- rives a simple version of a demand function for corporate control in a setting similar to Jensen and Meckling (1). Using a unique data set of dual class shares, we compare empirical methodologies estimating the value of control to the analytical methodology provided in this paper. This paper structures a new analytical power-based framework intended to value control of the firm as a function of the distribution of its shares, demand function for corpo- rate control and equilibrium conditions that have not been applied in the literature. The model presented here is able to identify the value of control that is associated with shares that are traded in the market by non-control seekers. Using basic assumptions such as an initial \"balance of threat\" among various rivals who compete for control, the model generates a game theory/equilibrium solution so that values generated by power indices are transformed into equilibrium financial values. An important implication of the model is that overall corporate equity, net of the value of control, is not a simple product of prevailing share market prices and the number of outstanding shares, since even share prices that are held by non-control seekers include a control pre- mium. Prevailing market prices of shares will reflect the dis- tribution of control and the extent to which the transfer of particular shares might impact the outcome of a corporate election. Hence, the marginal value of control associated with a particular share being transferred is expected to be quite different from the average value of control reflected in the overall value of equity. Furthermore, the identities and characteristics of buyers and sellers of given shares impact the values of those shares without necessarily affecting the value of assets yielding private benefits. This paper contributes to existing models valuing private benefits based on share class price differences (e.g., Lease, McConnell and Mikkelson (2) and (3) and Levy (4)) by in- corporating the important relationship between shares distri- bution and value of corporate control. This paper has several","PeriodicalId":246270,"journal":{"name":"The Open Business Journal","volume":"166 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2009-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"2","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"The Open Business Journal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2174/1874915100902010028","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 2
Abstract
Direct empirical valuation of corporate control has been hampered by the absence of systematic observable data and verifiable equilibrium models. This paper provides a new analytical framework for valuing voting rights, linking the value of control to the distribution of shares among shareholders along with corresponding Shapley and Owen Power In- dices. The new framework presented here transforms values generated by power indices into game theory/equilibrium fi- nancial values We illustrate our model using numerical methodologies based on share prices paid by agents seeking to control firms as well as market prices paid by shareholders who simply defer control to other agents. The paper also de- rives a simple version of a demand function for corporate control in a setting similar to Jensen and Meckling (1). Using a unique data set of dual class shares, we compare empirical methodologies estimating the value of control to the analytical methodology provided in this paper. This paper structures a new analytical power-based framework intended to value control of the firm as a function of the distribution of its shares, demand function for corpo- rate control and equilibrium conditions that have not been applied in the literature. The model presented here is able to identify the value of control that is associated with shares that are traded in the market by non-control seekers. Using basic assumptions such as an initial "balance of threat" among various rivals who compete for control, the model generates a game theory/equilibrium solution so that values generated by power indices are transformed into equilibrium financial values. An important implication of the model is that overall corporate equity, net of the value of control, is not a simple product of prevailing share market prices and the number of outstanding shares, since even share prices that are held by non-control seekers include a control pre- mium. Prevailing market prices of shares will reflect the dis- tribution of control and the extent to which the transfer of particular shares might impact the outcome of a corporate election. Hence, the marginal value of control associated with a particular share being transferred is expected to be quite different from the average value of control reflected in the overall value of equity. Furthermore, the identities and characteristics of buyers and sellers of given shares impact the values of those shares without necessarily affecting the value of assets yielding private benefits. This paper contributes to existing models valuing private benefits based on share class price differences (e.g., Lease, McConnell and Mikkelson (2) and (3) and Levy (4)) by in- corporating the important relationship between shares distri- bution and value of corporate control. This paper has several