Equity Structure and Corporate Governance

Nicola Torresani – Msc Finance 2008-2009 3 Synopsis Governance has always fascinated people at every level in the society, from politicians’ governance of states to governance of small family managed firms or huge multinational corporations. The always growing interest in corporate governance is due to the increasing importance of ensuring that investors obtain their expected return on their investments in order to stimulate lending and equity investments, that is to maintain the liquidity and stability of capital markets. This project begins with the definition of corporate governance and the analysis of the problems it generates with particular attention given to the agency problem. Then the main mechanisms of governance are presented, strengths and weaknesses of each control method are described in details and country level differences are examined. In the second part of the project, the focused is centred on the issue of the allocation and concentration of voting rights and its double side relationship with corporate governance and legal environment in which firms operate in the form of minority shareholders protection laws. The benchmark model of one share-one vote is illustrated and how, where and why deviations from this model take place are investigated. In particular I examined the various ways, the so called Proportionality limiting methods, in which cash flow rights are separated from voting rights.