Corporate Governance, Corporate and Employment Law, and the Costs of Expropriation (original) (raw)
Related papers
Expropriation of Minority Shareholders in Politically Connected Firms
SSRN Electronic Journal, 2000
The conflict of interest between controlling and minority shareholders is an important issue in firms with concentrated ownership. We document that expropriation behavior by controlling shareholders through tunneling or self-dealing is far more severe in politically connected firms than in nonpolitically connected firms. This severity results more from the formers' lower concern with capital market punishment than from the possibility that such firms tend to establish political connections for protection. Consistent with the view that a firm's financing condition influences its corporate governance, we show that such severe expropriation occurs only in firms whose political connection helps them secure bank loan access.
2008
This paper attempts to shed a new light on the economics and the law of corporate governance. It so does by taking stock of the weaknesses of the standard account of how law 'matters' for separation of ownership and control. This account fails to explain comparative corporate governance. Both the ownership structure and the functioning of the market for corporate control do not seem to depend entirely on the strength with which non-controlling shareholders are protected by corporate law. Without claiming that legal protection of minority shareholders does not matter in corporate governance, this paper shows that protection and exchange of corporate control is at least as important and so are the legal institutions that support them. This result is derived by introducing a third category of private benefits of control (idiosyncratic PBC), which supplements the more traditional specifications as inefficient consumption of control perquisites (distortionary PBC) or outright expropriation of shareholder value (diversionary PBC). The implications for corporate law are broader than those of the 'law matters' framework. Even though legal institutions effectively constrain expropriation of non-controlling shareholders, they may still make corporate governance inefficient when they fail to provide entitlements to uncontested control independently of how much ownership is retained by corporate controllers. Likewise, regulation may undermine the takeover process when it restricts side payments that ultimately support efficient bargaining upon the value of corporate control.
CEO COMPENSATION, EXPROPRIATION, AND THE BALANCE OF POWER AMONG LARGE SHAREHOLDERS
Stephen P. Ferris, Kose John, Anil K. Makhija (Eds.) Advances in Financial Economics,15, 195-238., 2012
Purpose-This study explores the probability of expropriation of minority shareholders by controlling shareholders in the form of CEO compensation under an imperfect governance institution by using a novel Chinese dataset over 2001-2010. Design/methodology/approach-We use a direct method to gauge controlling shareholders' tunneling and expropriation of minority shareholders, and we present a simple model to link corporate governance and the degree of entrenchment by the largest shareholder. We use both Logit and Probit models to predict the likelihood of tunneling and use two-stage least square (2SLS) regression to address the endogeneity issues. Findings-There are significant deterioration effects between controlling shareholder's tunneling and firm performance. Firms with more tunneling activities typically have larger controlling ownership, greater evidence of state control, less balance of power among large shareholders, and weaker board characteristics.
Ownership Structure and Expropriation in Stock Exchange Listed Firms
Corporate Ownership and Control, 2006
This paper analyses firms’ ownership structure and corporate governance in seven countries, with an emphasis on stock exchange listed firms. This focus is, in our view, important because these firms are more representative of the economies of countries included in our sample. Our results indicate that in Canada, Europe and East-Asia, ownership structure is highly concentrated. Most of the firms are controlled by at least one large shareholder who reinforces his or her control with devices such as multiple voting right shares, pyramidal structures, cross ownership, and reciprocal holding. In the U.S., firms’ ownership structure is more diffuse. The use of means to separate ownership from control is less present and the control of the large shareholder is lower than in the other sample countries. Being listed on the stock exchange can explain the firm’s ownership structure. Exchange-listed firms, which are generally larger in size than unlisted firms, tend to have more diffused owners...
Featuring Control Power: Corporate Law and Economics Revisited
IO: Firm Structure, 2008
This book reappraises the existing framework for economic analysis of corporate law. The standard approach to the legal foundations of corporate governance is based on the 'law matters' thesis, according to which corporate law promotes separation of ownership and control by protecting minority shareholders from expropriation. This book takes a broader perspective on the economic and legal determinants of corporate governance. It shows that investor protection is a necessary, but not sufficient, legal condition for efficient separation of ownership and control. Supporting control powers vested in managers or controlling shareholders is at least as important as protecting investors from their abuse. Corporate law does not only matter in the last respect; it matters in both.This result is derived by interpreting corporate governance based on three categories of private benefits of control. Corporate law affects corporate governance depending on its impact on each category of pr...
Ownership structure and minority expropriation: the case for multiple blockholders
Applied Financial Economics, 2012
This article investigates minority expropriation in closely-held firms. Using a sample of Spanish firms for the period from 1996 to 2006, we find that firms that are more vulnerable to minority expropriation have blockholders controlling groups with aggregate equity stakes that are far removed from 50%, which is the point that maximizes the chances of expropriation. Moreover, performance improves when the controlling group's stake moves away from the region where expropriation is more likely-the alignment effect-and, if within this region, when the number of group members increases-the bargaining effect.
Employee ownership, board representation, and corporate financial policies
Journal of Corporate Finance, 2011
French law mandates that employees of publicly listed companies can elect two types of directors to represent employees. Privatized companies must reserve board seats for directors elected by employees by right of employment, while employee-shareholders can elect a director whenever they hold at least 3% of outstanding shares. Using a comprehensive sample of firms in the Société des Bourses Françaises (SBF) 120 Index from 1998 to 2008, we examine the impact of employee-directors on corporate valuation, payout policy, and internal board organization and performance. We find that directors elected by employee shareholders increase firm valuation and profitability, but do not significantly impact corporate payout policy. Directors elected by employees by right significantly reduce payout ratios, but do not impact firm value or profitability. Employee representation on corporate boards thus appears to be at least value-neutral, and perhaps value-enhancing in the case of directors elected by employee shareholders.
Ownership structure, legal protections, and corporate governance
Annual World Bank Conference on Development …, 2000
This paper surveys the issues and devises an analytical framework for policy makers and policy advisors concerned with corporate governance. The framework takes a functional approach, identifying six functions provided by a governance system. The paper highlights the possibilities and limits to governance reform through the adoption of legal protections and the use of ownership structure. I caution against excessive emphasis on legal rules themselves, demonstrating their insufficiency to provide the functions of governance. Instead, I first emphasize the importance of effective legal protections that require complementary governance institutions including political structure, the location of judicial authority, norms, and information/reputation intermediaries. Second, I draw attention to ownership structure, reviewing theoretical and empirical support for the beneficial effect of identity and concentration on the functions of corporate governance in the absence of effective legal protections. A review of the evidence from established and newly privatized firms reinforces these contentions. The paper concludes with four broad agenda items for both reformers and future research.
1998
National Library BiMiothbque nationale du Canada Acquisitions and Acquisitions et Bibliognphic Services seMcas bibliographiques 395 Weliingbn Street 395, iue Wellington Onawa ON K1A ûiU4 OiiawaON K1AON4 Canada Canada The author bas granted a nonexclusive Iicence allowing the National Library of Canada to reproduce, loan, distribute or seli copies of this thesis in microfonn, paper or electronic formats. The author retains ownership of the copyright in this thesis. Neither the thesis nor substantial extracts fiom it may be printed or otheTWjse reproduced without the author's ~ennission. L'auteur a accordé une licence non exclusive permettant a la Bibliothèque nationale du Canada de reproduire, prêter, distribuer ou vendre des copies de cette thèse sous la forme de rnicrofiche/nlm, de reproduction sur papier ou sur format électronique. L'auteur conseme la propriété du droit d'auteur qui protège cette thèse. Ni la thèse ni des extraits substantiels de celle-ci ne doivent être imprimés ou autrement reproduits sans son A-autorisation. Coïporate governunce refom nee& to encompnrs a recognition of workem as equaabfe investors in theJirrril The present formufution of corporate fuw is indequate to remedj or diminish the hurm c o u d by the reminance by governments of labour refuîiolls and human rights to the private sector. It Is not sufficient to Ieave the dtwefopmmt of iûternative governance structures fo the private sector or cornmon luw judicid iîtterprefation. Crucial to any redefinition of governunce k an acknowledgement of the current normutive underpinnings ofthe wealth maximizution model. Once ir is recognued that definirions of efficiency and shareholder wealth normuîive choikes, then the decision to exclude workers' humun capilal investments /rom consideration under fiducjury du@ becomes much less cornpefling. Governance structures must accotd a &cision making role to those whose investmenis in the /Srm are ut greutest rkk. Fiduchy du@ is best s e m l uhen directors and offrcrs mmt act in the best interests of the corporation lraving regard for both the equity investments of shareholders and the equituble investntenfi of workers. Application of relalional board theory, use of insfifuîïonal investors whose capital contributions corn from workers, and increased access to governance by workets and their bocgaining agents, are (ikely to resuit in highly eflective decision making which enhances the viabikty of the corporation. Rotecting Workers' Equüable Invatment& Ui the Firm Vrewing Corporate Governance Reform through the Lens of D i s m~t i e d Government Infrastructure Protecting Worked Equitable Investmentk in the F h n Vrewing Corporute Governance Reform through the Lens of DhmanHed Gmrnment Infrastructure ' See for example, Jonathan Macey and Geoflky Miller, "Corporate Stakeholders: A Contractuai Perspective" (1993) 43 U.T.L.J. 400; I.G. MacIntosh, "Designing an Efficient Fiduciary Law" (1993) 43 U.T.L.J. 425. However, in the present atmosphere of dismantied statutory protection for workers, this is unlikely and thus, it will take some leadership fiom corporations to begin the process of redefinition and recognition of equitable claims of workers. PARTI A CONTEXT FOR THE GOVL.AIVCE DEUTE A. Tradilionai notions of corpurate govername Finns structure thernselves in a myriad of ways, nom difFerent kinds of partnership and joint venture arrangements, to the spectnun of closely held private corporations to publicly traded widely held compaties, and al1 the variations borne of mergers, acquisitions, subsidiary arrangements, and cross ~hareholdin~s.2 The classic starting point is that ownership of pnvate property is the key means by which resources are efficientiy used in our society. The goal of the modem corporation has k e n most ofien articuiated as maximizing shareholder wealth,' maximizing the wealth of the corPoratio$ and much less fiequently as rnaviminng weaith creation as a benefit to society.' The maxunization of shareholder wealth as an objective recognizes that as residual owners of the corporation, shareholders must be compensated for the period in which their capital is committed, the risk that they are asked to bear, and the amount of return required to ensure the continued use of their capital? This has resulted in shareholdercentred govemance structures, in which directors and officers as agents of shareholders try to balance shareholder rights with sometimes competing statutorily and judicially imposed The focus here is the corporation, although much of the governance debate is adaptable to other finn structures.