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Duarte Brito, Einer Elhauge, Ricardo Ribeiro & Helder Vasconcelos, Modeling Horizontal Shareholding with Ownership Dispersion (Oct. 2018).

Abstract: The dominant formulation for modeling the objective function of managers of competing firm with horizontal shareholding has been critiqued for producing the result that, if non-horizontal shareholders are highly dispersed, managers would mimic the interests of horizontal shareholders even if they own a share of the firm that does not induce full control. We show that this issue can be avoided (while maintaining the remaining features of the dominant approach) with an alternative formulation that is derived from a probabilistic voting model that assumes shareholders with higher financial stakes will take greater interest in the managerial actions, which yields the result that managers maximize a control-weighted sum of the shareholders’ relative returns.