On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

Barry, Jordan M.; Hatfield, John William; Kominers, Scott Duke

doi:10.2139/ssrn.2134458

Cited by 6 publications

(4 citation statements)

References 18 publications

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“…Jensen and Meckling’s (1976) seminal article is more explicit, stating as a core assumption that ‘No outside owner gains utility from ownership in a firm in any way other than through its effect on his wealth or cash flows’ (p. 314). This assumption, however, ignores the potential presence of business relationships with a shareholder (Davis and Kim, 2007), shareholder utilization of derivatives (Barry et al, 2013; Brav and Mathews, 2011), and in general the portfolio interests of contemporary shareholders, such as the increasingly widespread scenario where shareholders of the focal firm are also shareholders of its competitors (e.g., Connelly et al, 2019). A shareholder with a diversified portfolio, for instance, could benefit from the actions of the focal firm through other portfolio investments, say, if the focal firm pays a substantial premium to acquire another of the shareholder’s portfolio firms (e.g., Goranova et al, 2010; Matvos and Ostrovsky, 2008) or pares down aggressive competition (e.g., Connelly et al, 2019), thus benefiting other portfolio firms.…”

Section: Transformation Of Corporate Ownership and Shareholder Value ...mentioning

confidence: 99%

The Corporate Objective Revisited: The Shareholder Perspective

Goranova

Ryan

2021

J Management Studies

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Shareholder value maximization has spurred a long‐standing and heated debate between the proponents of a unified corporate objective function and the supporters of multi‐constituency goals of the corporation. We weigh in on the corporate purpose debate from a different point of view: that of the shareholders. Specifically, we seek to critically assess the assumptions about shareholders embedded in the shareholder value maximization doctrine and examine the implications of three contemporary shareholding practices: (a) shareholders investing concurrently in competing firms, (b) residual‐risk bearing decoupling, and (c) heterogeneous shareholder interests. Our critique draws out the challenges that contemporary shareholder practices pose for corporate governance and highlights the need for strategic corporate governance, or governance policies and practices that prioritize the sustainable competitive advantage of the firm.

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Section: Transformation Of Corporate Ownership and Shareholder Value ...mentioning

confidence: 99%

The Corporate Objective Revisited: The Shareholder Perspective

Goranova

Ryan

2021

J Management Studies

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“…Indeed, shareholder unanimity is not assured except under unrealistic assumptions such as complete markets and perfect competition. Third, the ability to engage in short selling and trade derivatives can decouple the economic interests of some shareholders from their voting rights (Barry, Hatfield, and Kominers 2013).…”

Section: Financialization and Shareholder Governancementioning

confidence: 99%

A Skeptical View of Financialized Corporate Governance

Admati

2017

Journal of Economic Perspectives

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T he vast bulk of economic activity today involves business corporations. Corporations are abstract legal entities that combine legal rights and obligations with a significant degree of flexibility. The legal separation between corporations and their stakeholders, including shareholders, has been important to the success of the corporate form in organizing long-term, large-scale production, while limited liability and the tradability of shares help corporations acquire funds from a broad set of investors.However, this legal separation exacerbates conflicts of interest between those who control corporations and others, including shareholders, creditors, employees, suppliers, customers, public authorities, and the general public. In large corporations, stakeholders vary enormously in the information and degree of control they have on corporate actions. Contracts and markets do not generally create efficient outcomes if markets are not competitive, contracts are incomplete or costly to enforce, or if corporate actions create negative externalities for those with little information or control. Laws and regulations can help alleviate these frictions, but their design and enforcement are also costly and subject to information and control frictions.In recent decades, much emphasis has been placed on aligning the interests of managers and shareholders. Managerial compensation typically relies on financial yardsticks such as profits, stock prices, and return on equity to achieve

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“…As customers, they would not necessarily support the corporation charging them monopoly prices, even though monopoly rents would increase their shareholder value. In today's markets, the ability to engage in shortselling and trade in derivatives market can also decouple the economic interests of some shareholders from their voting rights (Martin and Partnoy 2005, Hu and Black 2006, Barry et al 2013).…”

Section: Financialization and Corporate Governancementioning

confidence: 99%

Financialization and the Political Economy of Corporations

Admati

2017

SSRN Journal

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On Derivatives Markets and Social Welfare: A Theory of Empty Voting and Hidden Ownership

Cited by 6 publications

References 18 publications

The Corporate Objective Revisited: The Shareholder Perspective

The Corporate Objective Revisited: The Shareholder Perspective

A Skeptical View of Financialized Corporate Governance

Financialization and the Political Economy of Corporations

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