How do large minority shareholders wield control?

While high ownership concentrations in even the largest American corporations provide prima facie evidence that large minority shareholders wield control, the economics and finance literatures have mostly overlooked the question of how they do so. Using a simple framework adapted from work by Shleifer and Vishny (1986), this paper shows how minority shareholders can use takeover threats to discipline management. It then shows how they can bolster their threats, and hence their influence, simply by threatening to increase these minority stakes. When inside information is not too problematic, a relatively small stake can endow minority shareholders with considerable ongoing control.