Daniel Wolfenzon

The balance of power in closely held corporations

We analyze a closely held corporation characterized by the absence of a resale market for its shares. We show that the founder of the firm can optimally choose an ownership structure with several large shareholders to force them to form coalitions to obtain control. By grouping member cash flows, a coalition internalizes to a larger extent the consequences of its actions and hence takes more efficient actions than would any of its individual members. The model has implications for the optimal bundling of cash flow and voting rights, and for the optimal number and size of shareholders.

Governance Problems in Closely-Held Corporations

A major governance problem in closely held corporations is the majority shareholders’ expropriation of minority shareholders. As a solution, legal and finance research recommends that the main shareholder surrender some control to minority shareholders via ownership rights. We test this proposition on a large data set of closely held corporations. We find that shared-ownership firms report a substantially larger return on assets and lower expense-to-sales ratios. These findings are robust to institutionally motivated corrections for endogeneity of ownership structure. We provide evidence on the presence of governance problems and the effectiveness of shared ownership as a solution in settings characterized by illiquidity of ownership.

Drivers of Effort: Evidence from Employee Absenteeism

We use detailed information on individual absent spells of all employees in 4,140 firms in Denmark to document large differences across firms in average absenteeism. Using employees who switch firms, we decompose days absent into an individual component (e.g., motivation, work ethic) and a firm component (e.g., incentives, corporate culture). We find the firm component explains a large fraction of the difference in absenteeism across firms. We present suggestive evidence of the mechanisms behind the firm effect. After controlling for selection of employees into firms, family firm status and concentrated ownership are strongly correlated with decreases in absenteeism. Taken together, the evidence supports the importance of firm-level mechanisms in eliciting effort from existing employees.