An Empirical Comparison of the Performance of Classical Power Indices

Leech, Dennis

doi:10.1111/1467-9248.00356

Cited by 86 publications

(74 citation statements)

References 26 publications

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“…These indices have been used in some studies of corporate governance (Leech 1988, 2002, Pohjola 1988, Rydqvist 1986, Zingales 1994, Zwiebel 1995), but have not been applied to the measurement of control rights exerted through a pyramid. The two best-known voting power indices are those developed by Shapley and Shubik (1954) and Banzhaf (1965).…”

Section: Voting Power Indicesmentioning

confidence: 99%

Control Rights, Pyramids, and the Measurement of Ownership Concentration

Edwards

Weichenrieder

2009

SSRN Journal

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Section: Voting Power Indicesmentioning

confidence: 99%

Control Rights, Pyramids, and the Measurement of Ownership Concentration

Edwards

Weichenrieder

2009

SSRN Journal

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“…In order to model family voting behaviour, it is assumed that all owners with identical last names belong to one family and that members of one family voting power as the expected payoff that an owner gets from a fixed prize that is allocated to the winning coalition. Leech (2002) finds that the Banzhaf measure reflects variations in the power of shareholders of British listed companies better than the Shapley-Shubik measure. The measure used here is a linear function of the Banzhaf measure.…”

Section: Measurement Of Potential Loss Of Controlmentioning

confidence: 97%

Benefits of Control, Capital Structure and Company Growth

Mueller

2005

SSRN Journal

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0555.pdf Non-technical SummaryOwners of private companies often attribute a high valuation to the control they can exert over their companies. In addition to profits, this control is part of the ownership benefits they enjoy. This paper analyses how attaching a relatively high importance to control influences the development of companies. Specifically, we look at the use of different financing instruments and the growth of companies.In order to investigate the consequences of the benefits of control, it is important to be able to quantify them. For instance, owners can exert control by voting at their company's annual shareholder meetings. We approximate the extent of control by the probability of the largest owner winning a vote. We then calculate the probability of winning following a hypothetical equity increase. Potential loss of control is measured by the difference of the probability of winning a vote before and after this hypothetical increase. If the potential loss of control is higher, the owner would lose more private benefits in an equity expansion.To study the influence of control, information on almost 9,000 private UK companies with limited liability is used.The analysis has three main results. First, we find a negative relationship between potential loss of control and the size of equity increases. Owners who lose more control for a given equity increase face a cost component in addition to the required return on the new equity -the cost of losing influence. This makes equity increases less attractive.Second, we find that potential loss of control is positively related to the leverage of companies. Companies in which existing owners would lose more control in an expansion rely more extensively on bank financing and therefore have higher leverage than otherwise comparable companies. Owners are prepared to pay higher interest rates for additional loans in order to maintain control.Third, the relationship between potential loss of control and company growth is negative.This is a consequence of the first two results. Some growth opportunities become unprofitable, if they are financed with debt in a situation where debt levels are already high. Even if the returns of the growth opportunity exceed the cost of equity capital, equity finance may not be used, because a control premium is demanded. As a result, fewer growth opportunities will be realised and company growth will be smaller. Benefits of Control, Capital Structur...

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“…These include [35], [3], [28], [31], [8], and [6]. A survey of these methods can be found in [15,19]. Since the indices are hard to compute, the following methods have been proposed to approximate them [24]:…”

Section: Related Workmentioning

confidence: 99%

A heuristic approximation method for the Banzhaf index for voting games

Fatima

Wooldridge

Jennings

2012

MGS

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The Banzhaf index is a well known and widely used index for measuring the power a player has in a voting game. However, the problem of computing this index is computationally hard. To overcome this problem, a number of approximation methods were developed for one majority voting games. While it may be possible to extend some of these to k-majority games (which are generalized versions of one majority games), to date, there has been no performance analysis of these methods in the context of the Banzhaf index for k-majority games. In this paper, we fill this gap, by first presenting an approximation method for the Banzhaf index for kmajority games. This is a heuristic method that uses randomization to estimate an approximate. We then show that this method is computationally feasible. Finally, we evaluate its performance by analyzing its error of approximation, and show how the error varies with k. Specifically, we show that the average percentage error increases from 15% for games with k = 1 to 30% for games with k = 5.

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An Empirical Comparison of the Performance of Classical Power Indices

Cited by 86 publications

References 26 publications

Control Rights, Pyramids, and the Measurement of Ownership Concentration

Control Rights, Pyramids, and the Measurement of Ownership Concentration

Benefits of Control, Capital Structure and Company Growth

A heuristic approximation method for the Banzhaf index for voting games

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