Multiple Shareholders and Control Contests

We consider the allocation of corporate control in a company with two large and a continuum of small shareholders. Control is determined in a shareholders' meeting, where the large shareholders submit competing proposals in order to attract the vote of small shareholders. The presence of multiple shareholders reduces private benefits through competition for control. In the optimal ownership structure, the more efficient blockholder will hold just enough shares to gain control, but a large fraction of shares is allocated to the less efficient shareholder in order to reduce rents. We investigate when the large shareholders would want to trade parts or all of their share blocks among them, and show that the concern about retrading will lead to a larger than optimal stake of the controlling shareholder.