Shareholders' Agreements and Voting Power: Evidence from Italian Listed Firms

Abstract

This work provides an empirical investigation of shareholders' agreements signed in Italy over the past decade. The evidence shows that agreements produce a remarkable reshuffling of voting power (Shapley value) among participants. In particular, the first owner gains much voting power at low levels of ownership concentration, and his gain is decreasing in his ownership stake; the opposite happens for the other participants. In addition, the likelihood that a super majority rule is included in an agreement contract is increasing in the first owner's share of equity. These findings are consistent with the hypothesis that agreements are used to correct situations where the first owner's power is at one of the two extremes: either too low (leading to insufficient monitoring over managers and gridlock in decision making) or too high (enabling him to extract large private benefits of control).

Keywords: Corporate governance, shareholders' agreements, large shareholder, voting power, one-share-one-vote

JEL Classification: G3