Investment Decisions under Majority Rule

This paper analyzes the relation between stock market valuations of firms and the optimal choice of capital stock when markets are incomplete and firms act in the interests of a majority shareholders. No spanning assumptions are made. The standard unanimity results emerge as a special case when marginal spanning holds. A simple stochastic model of shareholder voting determines under, two assumptions about ownership, the probability distribution of the firm's optimal capital stock when the number of shareholders is large.