I'm primarily an investor so looking at this issue from an investment viewpoint (i.e buying part ownership/interest in a business not buying a price movement).
One issue that I've come across is in businesses that have fairly low percentage of free liquidity e.g. 70%+ of ownership is tied up in a majority shareholder. For minority shareholders I believe that often when a business like this begins to show its true potential, minority shareholders often miss out on realising the full value. I'm wondering if this is something else others have come across and are conscious of as an issue.
Examples of the sort of thing I'm talking about could be:
* As the company starts to generate decent profits, funds, institutions or other strategic investors get on board via capital raisings done by the company issuing shares at market price. This saves them from having to buy a strategic stake on market so to some extent removes a potential source of upward pressure on the price. To me this disadvantages small shareholders that have had to patiently accumulate a holding at market prices as stock becomes available. I believe the reason the majority shareholder would approve a capital raising such as this is for the credibilty obtained by having a significant strategic investor take a stake (and sometimes because the company can benefit from the capital though I've seen this sort of thing happen in companies that have so much cash they already don't know what to do with it).
* The other one that worries me the most and is quite a common one is that the major shareholder sells out too early to another company, thus forcing the smaller shareholders to have to go along as well - often meaning a good value business is sold too cheaply (or more cheaply than the smaller shareholders would have agreed to).
* A further one that worries me is siphoning of profits into related businesses rather than returning them to shareholders - not sure how much this goes on and I'm also not sure what legal protection there is for this sort of stuff (I know it needs to be disclosed - but that doesn't mean its not allowed to be done does it?). For example a company that spends a lot of money on marketing with another company that is related to the primary shareholder, rather than returning that money as profits.
* Another one is just the majority shareholder doing some type of mop-up operation themselves as value starts to come into the business and privatising it - again forcing smaller shareholders to give up a shareholding in a good business at a price they don't believe values it properly.
I'm sure there's other things - and if anyone can think of others I'd be curious to hear them.
Just wondering if other people have come across these sorts of issues and how much it impacts a decision to invest in a small cap.
I guess the same issues apply with large capitalisation stocks as well, but typically the controlling interest isn't as significant (if there is one) so there are other large shareholders that even the balance out, also the higher profile means things that cause a significant disadvantage to smaller shareholders get media attention.
any input appreciated.