The Distribution and Valuation of Corporate Control

ABSTRACT

Direct empirical valuation of corporate control has been hampered by the absence of systematic observable data and verifiable equilibrium models. This paper provides a new analytical framework for valuing voting rights, linking the value of control to the distribution of shares among shareholders along with corresponding Shapley and Owen Power Indices. The new framework presented here transforms values generated by power indices into game theory/equilibrium financial values We illustrate our model using numerical methodologies based on share prices paid by agents seeking to control firms as well as market prices paid by shareholders who simply defer control to other agents. The paper also derives a simple version of a demand function for corporate control in a setting similar to Jensen and Meckling [1]. Using a unique data set of dual class shares, we compare empirical methodologies estimating the value of control to the analytical methodology provided in this paper.

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