Does Debt Curb Controlling Shareholders’ Private Benefits? Modelling in a Contingent Claim Framework

2016 ◽  
Author(s):  
Hubert de La Bruslerie
Keyword(s):  
Contingent Claim ◽  
Private Benefits ◽  
Controlling Shareholders

scholarly journals Investor Protection and Agency Theory in Corporate Governance in Pakistan

2021 ◽  
Vol 3 (1) ◽  
pp. 12-21
Author(s):  
Imtiaz Ahmed Khan ◽  
Altaf Hussain Abro ◽  
Farooque Ahmed Leghari
Keyword(s):  
Corporate Governance ◽  
Agency Theory ◽  
Agency Cost ◽  
Corporate Structure ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
Global Trend ◽  
The Cost ◽  
Very High

The paper discusses the minority shareholders’ protection under the quantumof agency cost in corporate governance in Pakistan. The agency theory statesthat in most of the cases, the controlling shareholders and the topmanagement are normally involved in expropriating the funds of the company.This phenomenon increases the agency cost. The agency cost is directlyproportional to the cost of functioning of the company. In other words, theagency cost is inversely proportional to the profit of the company. Accordingto the agency theory, if the agency cost is decreased, the profit for investorincreases. The Pakistani corporate sector is dominated by the businessfamilies, the state and an opportunity to get the private benefits at the cost ofother stakeholders. There are the different mechanisms as discussed andapplied around the world to minimize the agency cost so as to make companyfinancially strong and better profit for the investors. In Pakistan, the agencycost is very high. Hence, there is a need to revamp the corporate governancemechanism to reduce the agency cost in order to provide a better protection tominority shareholders in a particular in the context of the global trend keepingin the view of the nature of corporate structure in Pakistan.

Majority and Minority Shareholders

2020 ◽  
pp. 119-174
Author(s):  
Paul Davies
Keyword(s):  
At Risk ◽  
High Risk ◽  
Small Group ◽  
Company Law ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
The Third ◽  
Wide Range ◽  
A Company

Where a company has a controlling or a small group of controlling shareholders, the non-controlling shareholders are at risk that the controllers will extract private benefits of control at the expense of the non-controllers. UK company law contains a wide range of techniques for addressing this issue, some more effective than others. This chapter begins by examining the various ways in which well-advised investors can contract for protection before they enter the company and how the law protects the agreements reached. The second part discusses rights to exit the company upon the occurrence of certain events. The third part discusses disclosure rights, designed to bring self-dealing transactions into the open. The fourth focuses on ways of structuring the board or shareholder body when the decision before it carries a high risk of self-dealing. The final part considers cases where the courts review the substantive fairness of the controllers’ conduct, notably, but not only, the provisions on ‘unfair prejudice.

5. Majority and Minority Shareholders

2020 ◽  
pp. 119-174
Author(s):  
Paul Davies
Keyword(s):  
At Risk ◽  
High Risk ◽  
Small Group ◽  
Company Law ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
The Third ◽  
Wide Range ◽  
A Company

Where a company has a controlling or a small group of controlling shareholders, the non-controlling shareholders are at risk that the controllers will extract private benefits of control at the expense of the non-controllers. UK company law contains a wide range of techniques for addressing this issue, some more effective than others. This chapter begins by examining the various ways in which well-advised investors can contract for protection before they enter the company and how the law protects the agreements reached. The second part discusses rights to exit the company upon the occurrence of certain events. The third part discusses disclosure rights, designed to bring self-dealing transactions into the open. The fourth focuses on ways of structuring the board or shareholder body when the decision before it carries a high risk of self-dealing. The final part considers cases where the courts review the substantive fairness of the controllers’ conduct, notably, but not only, the provisions on ‘unfair prejudice.

The ultimate controlling owner and corporate governance in Brazil

2019 ◽  
Vol 19 (1) ◽  
pp. 120-140 ◽  
Author(s):  
Vicente Lima Crisóstomo ◽  
Isac de Freitas Brandão
Keyword(s):  
Corporate Governance ◽  
Emerging Market ◽  
Governance System ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Content Type ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
Corporate Governance System

Purpose High ownership concentration makes controlling blockholders powerful enough to use private benefits of control and able to shape the corporate governance system to favor their own interests. This paper aims to examine the effect of the nature of the ultimate firm owner on the quality of corporate governance in Brazil. Design/methodology/approach Econometric models are estimated to assess whether the nature of the ultimate controlling shareholder affects the quality of the corporate governance system. Models are estimated using panel data methodology with coefficients estimated by the generalized method of moments system estimator. Findings The results show that the absence of a controlling shareholder has a positive effect on corporate governance, whereas the presence of a controlling blockholder, or a shareholder agreement among a few large shareholders, has a negative effect. This adverse effect holds when the controlling blockholder is a family or another firm. The findings are in line with the expropriation effect given that weaker corporate governance system facilitates controlling shareholders’ ability to extract private benefits of control. The findings also give support to the substitution effect as powerful blockholders take on the management monitoring function by weakening the board. Originality value Following important previous literature, the study investigates the effect of the nature of large controlling shareholders on the adoption of good corporate governance practices. The work provides additional evidence on the effect of the nature of large controlling shareholders on the quality of the corporate governance system in Brazil, taking into account the main kinds of controlling blockholders present in that market. The findings give support to both the expropriation and substitution hypotheses highlighting the presence of the principal-principal agency model in an important emerging market, Brazil.

scholarly journals Rights issues, private benefits and negative-NPV investments

2008 ◽  
Vol 6 (2) ◽  
pp. 238-245
Author(s):  
Michele Meoli ◽  
Stefano Paleari ◽  
Giovanni Urga
Keyword(s):  
Listed Company ◽  
Market Price ◽  
Legal Framework ◽  
Private Benefits ◽  
Controlling Shareholder ◽  
Equity Issues ◽  
Abuse Of Power ◽  
Controlling Shareholders ◽  
Rights Issue ◽  
Rights Issues

This paper discusses the use of rights issues when interest conflicts between controlling shareholders and minorities exist, due to the existence of private benefits that the former can extract from the value of listed company. While the literature considers the issue of pre-emptive rights as an essential tool to protect minorities from expropriation, we propose that pre-emptive rights are used to enforce the subscription of seasoned equity issues. We define an abuse condition as the case when a controlling shareholder choose discretionally an issuing price, granting a discount with respect to the market price, and "enforce" minorities to undertake a negative-NPV investment. Minorities do so because they are minimizing an exit cost that is greater than zero. As the rights issue never fails under these conditions, we define this phenomenon as "enforced subscription". This model fits the Italian legal framework and many other international contexts where rights issues are dominant. We report the case of Alitalia’s rights issue in 2005 as a typical example of "enforcement at work". As rights issues at a high discount often involve an abuse of power by the controlling shareholders, we argue that their use should be carefully regulated.

scholarly journals International private benefits of control: New evidence

2011 ◽  
Vol 8 (4) ◽  
pp. 64-83
Author(s):  
Nhut H. Nguyen ◽  
Yubo Liu
Keyword(s):  
Investor Protection ◽  
Private Benefits ◽  
Policy Makers ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
Corporate Scandals ◽  
Weak Evidence ◽  
Private Control ◽  
New Evidence ◽  
The Relationship

The 1998 Asian Financial Crisis and more recent corporate scandals in the U.S. have triggered an increased attention of researchers and policy makers on the agency problem between controlling shareholders and minority investors. One respect of this problem is the private benefits of control. In this paper, we investigate the relationship between investor protection and private benefits of control. We find consistent evidence with Dyck and Zingales (2004) that the degree of investor protection still matters in curbing private control benefits for the more recent period 1999-2007. More importantly, we find that private benefits of control have decreased significantly over time. Finally, our results show weak evidence of differential decreases in the value of control for weak and strong investor protection countries.

scholarly journals International private benefits of control: Cross-sectional and time-series analysis

2011 ◽  
Vol 7 (2) ◽  
pp. 7-14
Author(s):  
Nhut H. Nguyen ◽  
Yubo Liu
Keyword(s):  
Investor Protection ◽  
Asian Financial Crisis ◽  
Private Benefits ◽  
Cross Sectional ◽  
Policy Makers ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
Corporate Scandals ◽  
Weak Evidence ◽  
Private Control

The 1998 Asian Financial Crisis and more recent corporate scandals in the U.S. have triggered growing attention of researchers and policy makers on the agency problem between controlling shareholders and minority investors. One respect of this problem is private benefits of control. In this paper, we extend the findings in Dyck and Zingales (2004) and show that the degree of investor protection still matters in curbing private control benefits for the period 1999–2007. More importantly, we find that private benefits of control have decreased significantly over time. Finally, our analyses show weak evidence of differential decreases in the value of control between weak and strong investor protection countries.

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