One share-one vote and the market for corporate control

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Sanford J. Grossmana and Oliver D. Hartb

aPrinceton University, Princeton, NJ 08544, USA
bMassachusetts Institute of Technology, Cambridge, MA 02139, USA



Available online 1 April 2002.


AbstractThis paper analyzes the optimality of the one share-one vote rule. We focus on takeover bids as a mechanism for allocating control. We assume two types of control benefits — benefits to security holders and private benefits to the controlling party. One share-one vote maximizes the importance of benefits to securityholders relative to benefits to the controlling party and hence encourages the selection of an efficient management team. However, one share-one vote does not always maximize the reward to securityholders in a corporate control contest. Sufficient conditions are given for one share-one vote to be optimal overall. The paper also includes a discussion of the empirical evidence.



























Both authors gratefully acknowledge research support from the National Science Foundation. The second author is also pleased to acknowledge financial support from the Guggenheim Foundation and the Center for Energy Policy Research at MIT. We also thank Harry DeAngelo, Douglas Diamond, Leo Herzel, Richard Ruback, and Michael Jensen (the editor) for their helpful comments on an earlier draft.

Journal of Financial Economics Volume 20, January-March 1988, Pages 175-202 The Distribution of Power Among Corporate Managers, Shareholders, and Directors