Two studies by the authors demonstrate that the presence of robust shareholder agreements in publicly traded family firms in France adds 18% in market value to shareholders because they protect shareholders against misuse of capital by groups of family members. This article describes the critical provisions in such agreements and presents data showing the impact of these provisions on market value.
A shareholder agreement (SA) is a legally enforceable contract signed by large shareholders. Its provisions typically bind the shareholders to make certain decisions together and limit when and to whom they can sell shares. SAs can create shareholder value when used by signatories to hold each other accountable, but they can destroy value when several join SAs to act as one large shareholder to extract benefits via lucrative insider transactions. Our research shows that the presence of the right kind of SAs can have a dramatically positive effect on the market valuation of family firms.
