Shareholder agreements and mechanisms for strengthening control.

Summary The ownership structure is an integral part of corporate governance mechanisms. Two particular dimensions are studied in this work: shareholders' agreements that formalize the presence of a controlling coalition and the gap between voting rights and capital rights. The empirical analysis is conducted on a large sample of French listed firms. We show that the existence of a pact offsets the negative effect on performance of an unequal distribution of voting rights among large shareholders. Pacts thus appear to be effective coordination mechanisms. We then analyze the relationship between shareholder pacts and the takeover market. We find that firms with a pact are no less likely to be subject to a change of control, and that a change of control is achieved at a higher premium. This result contradicts the idea that shareholder pacts slow down ownership transfers. In a final study on acquisition policy, we find that the difference between the voting rights and the equity rights of the largest shareholder of the acquiring company negatively affects the abnormal returns surrounding the announcement. Corporate acquisitions thus appear to be a channel for private profit extraction at the expense of minority shareholders.