Abstract
In large U.S. corporations, founding families are the only blockholders whose control rights on average exceed their cash flow rights. We analyze how families achieve this separation between cash-flow and control rights, and at what cost. We find that indirect ownership through trusts, foundations, limited partnerships, and other corporations is prevalent but rarely creates a wedge between cash-flow and control rights. The primary sources of the wedge are dual-class stock and voting agreements. Additional control is frequently obtained through board representation in excess of voting control, and through the presence of a family member as CEO or Chairman of the Board. We also find that the impact of control-enhancing mechanisms on firm value depends on the specific mechanism used: the effect is negative for dual-class stock and disproportional board representation, but positive for pyramids and voting agreements.
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