Special issue on corporate governancePreface

Occasionally the Review of Finance publishes special issues to bring together articles in an area that the editors view as particularly interesting and promising. One such area is corporate governance, broadly viewed as the set of arrangements that determine the allocation of control rights within firms, create checks and balances to limit them and shape the controlling parties' incentives. Corporate governance problems are at the root of macroscopic failures recently witnessed in financial markets—from corporate scandals to excess risk taking by banks. Therefore, it is not surprising that policy-makers and practitioners are taking an increasing interest in this area. As highlighted by the articles in this special issue, the academic community is responding to this interest with research that addresses the many different aspects of corporate governance, and the often subtle tradeoffs that arise in this area. One of the most contentious issues in corporate governance is how control rights should be allocated among shareholders, and more specifically whether investors who supply equal amounts of capital should have equal voting power—the “one share-one vote” principle. This principle is often violated in practice, and many studies have attempted to analyze the effects of departures from it. This special issue starts with two broad ranging papers on this topic, born out of the regulatory debate in the European Union on whether “one share-one vote” should be mandatory. In their paper “One Share-One Vote: the Theory,” Mike Burkart and Samuel Lee assess how disproportional voting rights affect takeover outcomes and blockholders' incentives, and how mandating one share-one vote is likely to affect firms' financing and ownership choices. They conclude that the principle of one share-one vote cannot be expected to consistently outperform dual-class structures in promoting efficient control allocation and mitigating agency problems. In general, adherence to the one share-one vote principle tends to reduce the influence of blockholders and empower managers. It therefore not only reduces the agency problems involving blockholders, but also the beneficial consequences of active owners, and replaces them with the agency problems typical of management-controlled firms.