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Abstract

The benefits and costs of control over corporate resources have attracted much attention among financial economists. The debate was originally initiated by Adam Smith’s legendary warning in his 1776 published book “An Inquiry into the Nature and Causes of the Wealth of Nations” about the “negligence and profusion” that will result when those who manage enterprises are “rather of other people’s money than of their own”.1 A century and a half later Adolf Berle and Gardiner Means (1932) returned to the theme of diffuse stock ownership. They argue in their seminal work “The Modern Corporation and Private Property” that modern enterprises face “the dissolution of the old atom of ownership [i.e. small organizations in which the owners where also the managers] into its component parts, control and beneficial ownership”.2 This notion of the separation of ownership and control has had a profound impact on economists. Michael C. Jensen and William H. Meckling (1976) modelled the effects of the dispersion of ownership and control by emphasizing “the general problem of agency”.3 As economists started to employ this agency perspective, it was mainly in the context of diffuse shareholders and professional managers.4

Keywords

Corporate Governance Minority Shareholder Large Shareholder Control Transfer Emerge Market Economy 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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    Adam Smith (1776); reprinted by Modern Library, New York (1937, p. 700).Google Scholar
  2. 2.
    Berle and Means (1932, p. 8).Google Scholar
  3. 3.
    Jensen and Meckling (1976, p. 309).Google Scholar
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    Morck et al. (1988, p. 301) suggest that at low levels of ownership, increases in managerial ownership help to align the interests of managers and shareholders. At higher levels of ownership, however, additional ownership by insiders leads to entrenchment. McConnell and Servaes (1990, p. 607) only confirm the findings for low levels of inside ownership. The most important theoretical objection has been put forward by Demsetz and Lehn (1985, p. 1174). Basically, they argue that in a competitive market environment market forces will make sure that every company chooses its value maximizing ownership structure. As a consequence, an endogeneity problem arises because ownership structure and firm value are determined simultaneously. Himmelberg et al. (1999, p. 360) note that panel data have certain advantages in addressing these issues.Google Scholar
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    Megginson and Netter (2001) provide an exhaustive review of over 225 studies regarding various economic aspects surrounding privatization.Google Scholar

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© Physica-Verlag Heidelberg 2008

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