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Trading-off Corporate Control and Personal Diversification through Capital Structure and Merger Activity

Journal article
Authors Martin Holmén
John Knopf
Stefan Peterson
Published in Journal of Business Finance and Accounting
Volume 34
Issue 9-10
Pages 1470-1495
ISSN 0306-686X
Publication year 2007
Published at Centre for Finance
Pages 1470-1495
Language en
Links www3.interscience.wiley.com/cgi-bin...
Keywords diversification, controlling shareholders, mergers, capital structure, votes
Subject categories Economics

Abstract

In this study we use direct estimates of the portfolio diversification of the largest shareholder in a firm to study the impact of shareholder diversification on the firm. For firms where the controlling shareholder is an individual our tests indicate that the owner-managers use debt, dual class shares and corporate control transactions (merger activity) to strategically trade off corporate control and the drawback of poor portfolio diversification. However, for firms where the controlling shareholder is an institution, our results indicate that control but not diversification is important.

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