One Share One Vote

Abstract

In the theoretical framework considered in the two seminal contributions, Grossman and Hart (GH, 1988) and Harris and Raviv (HR, 1989), the 'one share, one vote' (1S1V) rule is optimal whether private benefits are enjoyed by the incumbent or the rival. In practice, deviations from 1S1V are frequent. We complete the GH-HR analysis in three ways. First, we give both incumbent and rival management private benefits. Second, we not only examine the behaviour and optimality of feasible rules in a local or ex post sense (i.e. at the moment the rival appears and his characteristics are observed), but we also consider the ex ante problem where the entrepreneur-founder only knows the distribution from which the rival will be drawn. The issue is what set of rules the entrepreneur will put in place, re take-overs, so as to maximise the IPO value of the firm. Lastly, we go beyond the dual-class case, explaining the role and usefulness of multiple-class structures.

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