Managerial Voting Power and Firm Value

We use a measure of managerial voting power, derived from cooperative game theory, to show that managerial voting power is negatively related to firm value. We identify this effect by exploiting a German capital gains tax reform which caused an exogenous decrease in non‐managerial blockholdings and, as a result, an increase in managerial voting power. Our findings point to an important, yet relatively unexplored, channel through which managers may become entrenched and firm value may be affected. These detrimental effects of managerial voting power can arise even if ownership stakes are relatively low or if a wedge between cash flow rights and voting rights is absent.