scholarly journals ”The good, the bad, and the ugly” private benefits of control and their regulatory implications

2008 ◽  
Vol 5 (4) ◽  
pp. 477-491 ◽  
Author(s):  
Alessio M. Pacces
Keyword(s):  
Corporate Governance ◽  
Corporate Control ◽  
Legal Protection ◽  
Corporate Law ◽  
Legal Institutions ◽  
Minority Shareholders ◽  
Private Benefits ◽  
Controlling Shareholders ◽  
Private Benefits Of Control ◽  
The Law

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 in dependently 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

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.

scholarly journals Corporate Governance and Innovation: Theory and Evidence

2014 ◽  
Vol 49 (4) ◽  
pp. 957-1003 ◽  
Author(s):  
Haresh Sapra ◽  
Ajay Subramanian ◽  
Krishnamurthy V. Subramanian
Keyword(s):  
Corporate Governance ◽  
Corporate Control ◽  
Empirical Support ◽  
Innovation Theory ◽  
Private Benefits ◽  
Private Benefits Of Control ◽  
Market For Corporate Control ◽  
Ex Post ◽  
Corporate Governance Mechanisms ◽  
Ex Ante

AbstractWe develop a theory to show how external and internal corporate governance mechanisms affect innovation. We predict a U-shaped relation between innovation and external takeover pressure, which arises from the interaction between expected takeover premia and private benefits of control. Using ex ante and ex post innovation measures, we find strong empirical support for the predicted relation. We exploit the variation in takeover pressure created by the passage of antitakeover laws across different states. Innovation is fostered either by an unhindered market for corporate control or by antitakeover laws that are severe enough to effectively deter takeovers.

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.

Introduction to Company Law

2020 ◽  
Author(s):  
Paul Davies
Keyword(s):  
Corporate Governance ◽  
Corporate Law ◽  
Company Law ◽  
The Other ◽  
Soft Law ◽  
Organisational Structure ◽  
Controlling Shareholders ◽  
Trade Offs ◽  
The Social ◽  
The Law

Introduction to Company Law provides a conceptual introduction and a clear framework with which to navigate the intricacies of company law. The book analyses the mechanisms through which the law provides an organisational structure for the conduct of business. Given that structure, the book discusses how the law seeks to reduce the costs of using it, whether these are costs for managers, shareholders as a class, non-controlling shareholders, creditors, or employees, identifying the trade-offs involved. This discussion takes in both the Companies Act 2006 and various types of ‘soft law’, notably the Corporate Governance and Stewardship Codes. This third edition contains two new chapters: one on liability and enforcement and the other on the social function of corporate law. Both are issues that have come to prominence in the aftermath of the financial crisis of 2007–09.

Introduction to Company Law

2020 ◽  
Author(s):  
Paul Davies
Keyword(s):  
Corporate Governance ◽  
Corporate Law ◽  
Company Law ◽  
The Other ◽  
Soft Law ◽  
Organisational Structure ◽  
Controlling Shareholders ◽  
Trade Offs ◽  
The Social ◽  
The Law

Introduction to Company Law provides a conceptual introduction and a clear framework with which to navigate the intricacies of company law. The book analyses the mechanisms through which the law provides an organisational structure for the conduct of business. Given that structure, the book discusses how the law seeks to reduce the costs of using it, whether these are costs for managers, shareholders as a class, non-controlling shareholders, creditors, or employees, identifying the trade-offs involved. This discussion takes in both the Companies Act 2006 and various types of ‘soft law’, notably the Corporate Governance and Stewardship Codes. This third edition contains two new chapters: one on liability and enforcement and the other on the social function of corporate law. Both are issues that have come to prominence in the aftermath of the financial crisis of 2007–09.

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 End of Contractarianism?

2014 ◽  
pp. 517-538
Author(s):  
Kent Greenfield
Keyword(s):  
Corporate Governance ◽  
Global Financial Crisis ◽  
Corporate Law ◽  
Securities Market ◽  
Neoclassical Economics ◽  
Economic Rationality ◽  
Homo Economicus ◽  
Securities Law ◽  
The Law ◽  
The Global Financial Crisis

For a generation, the law of corporations depended on, and sprang from, a notion of economic rationality. This rationality took as its touchstone the efficiency of the marketplace (especially the securities market) and the predictability of the utility-maximizing behavior of the various actors. But behavioralism continues its victorious expansion throughout the law. Though corporate and securities law was perhaps one of the last bastions in the legal academy of the assumptions of neoclassical economics, it is safe to say that the global financial crisis finally marked the end of the glory days of homo economicus. This chapter will describe some of the ways in which economic rationality affected corporate law doctrine and scholarship during its heyday and will then turn to the behavioral research with implications for corporate governance and securities.

scholarly journals Perlindungan Hukum Terhadap Pemegang Saham Minoritas Pada Perseroan Terbatas Yang Melakukan Merger

2020 ◽  
Vol 2 (1) ◽  
pp. 59-62
Author(s):  
I Kadek Sridana ◽  
I Nyoman Putu Budiartha ◽  
I Putu Gede Seputra
Keyword(s):  
Research Method ◽  
Government Regulation ◽  
Legal Protection ◽  
Limited Liability ◽  
Limited Liability Company ◽  
Minority Shareholders ◽  
Legal Position ◽  
The Law ◽  
A Company

Abstract-Mergers can be said as a strategy or one way to increase a company, therefore there is a need for legal protection for minority shareholders if they do not agree with the merger but the merger is still implemented, and the shareholders are forced to accept the merger. The formulation of the problem in this case is (1) what is the position of the minority shareholders for the limited liability company that merges? (2) What is the legal protection of minority shareholders in a limited liability company that merges? This research method uses a normative research method by approaching the problem in the form of a draft law that relates to the problem under study. The sources of legal material to be used are sourced from research, the literature in the form of primary legal material and secondary legal material. The result of this study are the legal position of the minority shareholders of the company (PT) that carried out the merger has been regulated in Law number 40 of 2007 concerning Limited Liability Companies and in Government Regulation Number 27 of 1998 concerning merger, consolidation and takeover of the interests of minority shareholders. In general, the law of limited liability companies is a guideline in the framework of protecting minority shareholders. Protection of minority shares is one of the important things, especially when the company conducts legal actions such as mergers, both preventive legal protection and repressive legal protection. Keywords: Legal protection, shareholders, mergers Abstrak- Merger dapat dikatakan sebagai strategi atau salah satu cara untuk meningkatkan suatu perusahaan oleh karena itu perlu adanya perlindungan hukum terhadap pemegang saham minoritas apabila mereka tidak setuju dengan merger namun merger tetap dilaksanakan, dan pemegang saham tersebut dipaksakan untuk menerima merger tersebut. Adapun rumusan masalah dalam hal ini (1) Bagaimanakah kedudukan pemegang saham minoritas bagi perseroan terbatas yang melakukan merger? (2) Bagaimanakah perlindungan hukum terhadap pemegang saham minoritas pada perseroan terbatas yang melakukan merger? Metode penelitian ini menggunakan metode penelitian normatif dengan melakukan pendekatan masalah berupa pedekatan perundang-undangan yang berkaitan dengan masalah yang dikaji. Adapun sumber bahan hukum yang akan digunakan yakni bersumber dari penelitian, kepustakaan berupa bahan hukum primer dan bahan hukum sekunder. Adapun hasil dari penelitian ini adalah kedudukan hukum pemegang saham minoritas terhadap perusahaan (PT) yang melakukan merger, sudah diatur dalam Undang-undang nomor 40 tahun 2007 tentang Perseroan terbatas serta dalam Peraturan pemerintah Nomor 27 Tahun 1998 tentang penggabungan, peleburan, dan pengambilalihan tentang kepentingan pemegang saham minoritas. Secara umum hukum perseroan terbatas menjadi pedoman dalam rangka perlindungan pemegang saham minoritas. Perlindungan terhadap saham minoritas merupakan salah satu hal yang penting terutama saat persroan melakukan perbuatan hukum seperti merger baik perlindungan hukum secara preventif maupun perlindungan hukum secara represif. Kata kunci: Perlindungan hukum, Pemegang saham, Merger

scholarly journals Minority Shareholders’ Legal Protection in a Limited Liability Company System

2021 ◽  
Vol 14 (11) ◽  
pp. 1606-1612
Author(s):  
I Gde Sukarmo ◽  
◽  
Hayyanul Haq ◽  
Zainal Asikin ◽  
Salim HS
Keyword(s):  
Research Method ◽  
Legal Protection ◽  
Limited Liability ◽  
Limited Liability Company ◽  
Minority Shareholders ◽  
Shareholder Protection ◽  
The Law ◽  
Legal Concepts ◽  
Laws And Regulations

The purpose of this study is to determine the legal protection model for the majority and minority shareholders in public limited companies. This research method is normative research. To investigate the ineffectiveness of laws and regulations, in particular, Law No. 40 of 2007 on limited liability companies in providing shareholder protection, researchers have studied the laws and regulations and considered the views of experts on legal concepts related to legal protection for shareholders, particularly, minority shareholders. The results showed that the law did not provide maximum legal protection for minority shareholders, creating an imbalance between the rights of the minority and majority shareholders. For this reason, 1) reform or progressive changes in laws and regulations are needed, for instance, in PT Law No. 40 of 2007. These changes should be fundamental to philosophical aspects (values and perspectives) in providing shareholder protection; 2) the review of shareholders’ protection methods should be based on the aspects of fairness

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