Multiple Large Shareholders in Corporate Governance.

Large shareholders of firms with majority blocks are often at the helm of their companies and do not necessarily have the same interests as minority shareholders. We show that bargaining problems led by the presence of multiple controlling shareholders protect minority shareholders. The same bargaining problems, however, prevent efficient decisions. By solving this trade-off we find that i) multiple controlling shareholders should be present in firms with large costs of diluting minority shareholders and in firms with large financing requirements, ii) an optimal ownership structure requires the presence of a class of shareholders - the minority shareholders - with no control over corporate decisions. Evidence on the ownership structure of close corporations in the U.S. is consistent with our model.