1. Large Shareholders and Corporate Control By: Andrei Shleifer and Robert Vishny

2. Part 1: Introduction

3. Overview There exists a free rider problem with corporate monitoring This problem can be corrected with a large shareholder model.

4. Three Important Questions Under what circumstances will we observe a tender offer as opposed to a proxy fight or an internal management shake-up? How strong are the forces pushing toward increasing concentration of ownership of a diffusely held firm? Why do corporate and personal investors commonly hold stock in the same firm, despite their disparate tax preferences?

5. Shareholder Structure Fortune 500 sample reveals typical composition Who are the largest shareholders? Role of the large shareholder in takeovers

6. Part 2: Value of Large Shareholders

7. Cash Tender Offers Cash Tender offers made to replace inefficient management Simplified example

8. First Proposition Impact of an increase in proportion of shares held by L Larger shareholders are seen as more valuable How does this impact small shareholders?

9. Second Proposition Suppose there is an increase in legal costs Williams Act of 1968 Other impact of takeovers facilitated by large shareholders

10. Part 3: Other Mechanisms for Corporate Control

11. More Mechanisms The actions of L can serve as a signal for small shareholders Proxy Contests The “Jawboning” Mechanism

12. Pretakeover Trading Trades by L have an impact on price L would prefer secret buying The large shareholder is unlikely to sell.

13. Pretakeover Trading A 13-D disclosure form is required Problems could get worse by time of filing Why do large shareholders exist?

14. Part 4: Dividends as Subsidy to large shareholders

15. What are tax implications? Taxes mean different people will hold different valuations. Small shareholders and large shareholders may support different payment forms.

16. Dividend Policies Small shareholders may actually favor a dividend policy Paying for monitoring is not permitted.

17. Conclusion and Questions