The role and effect of controlling shareholders in corporate governance
- 665 Downloads
This paper examines two potentially contradictory effects of the presence of controlling shareholders. Controlling shareholders have been shown to be beneficial, as they generally have a long-term interest in the firm and are willing and able to monitor the actions of senior managers closely and decrease agency costs between shareholders and management (agency costs of Type I). However, they are also in a position to expropriate the firm’s assets, especially when they are actively involved in management (agency costs of Type II). More specifically, this article reviews how regulatory and legislative bodies have tried to curb the consumption of private benefits by controlling shareholders while preserving the beneficial aspects of their long-term interest and their monitoring role, the effect controlling shareholders on the application and effectiveness of corporate governance best practices as well as on the executive and board member remuneration.
KeywordsCorporate Governance Family Firm Agency Cost Private Equity Minority Shareholder
- Berle, A., & Means, G. (1932). The modern corporation and private property. New York: Macmillan.Google Scholar
- Dam, K. W. (2007). The law-growth nexus: The rule of law and economic development. Washington, DC: Brookings Institution Press.Google Scholar
- Enriques, L. (2015). Related party transactions: Policy options and real-world challenges (with a critique of the European Commission proposal). European Business Organization Law Review, 16(1), 1–37.Google Scholar
- Family Firm Institute (FFI). (2016). Global Data Points. http://www.ffi.org/page/globaldatapoints. Accessed 10 October 2016.
- Ferrarini, G., & Giudici, P. (2006). Financial scandals and the role of private enforcement: The parmalat case. In J. Armour & J. A. McCahery (Eds.), After Enron: 159–213. Oxford: Hart Publishing.Google Scholar
- Gilson, R. J. (2006). Controlling shareholders and corporate governance: Complicating the comparative taxonomy. Harvard Law Review, 116, 1641–1679.Google Scholar
- Giudici, P. (2009). Representative litigation in Italian capital markets: Italian derivative suits and (if ever) securities class actions. European Company and Financial Law Review, 6(2–3), 246–269.Google Scholar
- Gomez-Mejia, L., & Wiseman, R. (1997). Reframing executive compensation: An assessment and outlook. Journal of Management, 23(3), 291–374.Google Scholar
- Gutiérrez, M., Sáez, M. (2015). A contractual approach to discipline self-dealing by controlling shareholders. European Corporate Governance Institute (ECGI): Law Working Paper No. 138/2010.Google Scholar
- Tirole, J. (1986). Hierarchies and bureaucracies: On the role of collusion in organizations. Journal of Law Economics and Organization, 2(2), 181–214.Google Scholar