Review of Finance Advance Access published online on January 9, 2008
Review of Finance, doi:10.1093/rof/rfm035
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One Share - One Vote: the Theory*
1 Stockholm School of Economics, London School of Economics, CEPR and ECGI
2 Stockholm School of Economics and SITE
The theoretical literature on security-voting structure can be organized around three questions: What impact do nonvoting shares have on takeover outcomes? How does disproportional voting power affect the incentives of blockholders? What are the repercussions of mandating one share - one vote for firms' financing and ownership choices? Overall, the costs and benefits of separating cash flow and votes reflect the fundamental governance trade off between disempowering blockholders and empowering managers. It is therefore an open question whether mandating one share - one vote would improve the quality of corporate governance, notably in systems that so far relied on active owners.
JEL Classification: G32
* We would like to thank two anonymous referees, Marco Becht, Christophe Clerc, Luca Enriques, Leo Goldschmidt, Peter Montagnon, Marco Pagano (the editor) and Yishay Yafeh for helpful comments and discussions. Financial support from the European Corporate Governance Training Network (ECGTN) and the Jan Wallander Foundation is gratefully acknowledged. This survey is based on the authors' paper in an external study undertaken by International Shareholder Service (ISS), Sherman and Sterling LLP and the European Corporate Governance Institute (ECGI) on behalf of the European Commission. The views expressed in this article are solely ours and do not represent the official views of the aforementioned organizations.