Working Paper: NBER ID: w17808
Authors: Howard Bodenhorn
Abstract: Studies of corporate governance are concerned with two features of modern shareholding: diffuse ownership and the resulting separation of ownership and control, which potentially leads to managerial self-dealing; and, majority shareholding, which potentially mitigates some managerial self-dealing but opens the door for the expropriation of minority shareholders. This paper provides a study of the second issue for nineteenth-century US corporations. It investigates two related questions. First, did voting rules that limited the control rights of large shareholders encourage diffuse ownership? It did. Second, did diffuse ownership systematically alter bank risk taking? It did. Banks with less concentrated ownership followed policies that reduced liquidity and bankruptcy risk.
Keywords: Voting Rights; Share Concentration; Leverage; Nineteenth-Century Banks
JEL Codes: G21; G3; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Voting rules that limit the number of votes large shareholders can cast (G34) | More diffuse ownership (P26) |
| Banks operating under graduated voting rules (G21) | Higher number of shareholders (G34) |
| Diffuse ownership (D16) | Reduced liquidity and bankruptcy risk (G33) |
| Diffuse ownership (D16) | Increased default risk (G32) |
| Limited voting rights of majority shareholders (G34) | Reduced behaviors that induce bank risk (G21) |