Corporate governance : the case the limitation of the voting rights in a listed company

This study develops a new trade-off view of corporate governance from an examination of rules that limit voting rights as a defensive measure against a hostile takeover attempt. The theoretical framework concerns a listed company, the capital of which is mainly detained by atomistic shareholders and the power of which is in the hands of a small group of united minority shareholders, the hard core that wants to block any hostile takeover. The hard core constructs a device based on two parameters allowing it to act on the limitation of the voting rights: a threshold (δ ) below which each share is linked to one vote and above which each share gives less than one vote, according to a redistribution coefficient (γ ). First, this study proposes a model that enables the determination of the impacts of limitation of voting rights on the control of the firm, on the price of the share, and on the attractiveness of the takeover bid. Second, this study determines the optimal regulation of this device. This regulation has to prevent the hostile takeover while minimizing the regulation’s negative impact on the market due to an overprotection of the hard core to the detriment of the dispersed shareholders. Third, this study proposes various quantitative simulations to illustrate particularly complex situations. Finally, this study outlines potentially promising areas for future research.