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Are All Private Benefits of Control Ineffective? Principal–Principal Benefits, External Governance Quality, and Firm Performance

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  • Steve Sauerwald
  • Pursey P. M. A. R. Heugens
  • Roxana Turturea
  • Marc van Essen

Abstract

Private benefits of control (PBC) are benefits that controlling shareholders consume, but that are not shared with minority shareholders. Research focusing on the value protection role of corporate governance typically frames PBC as principal–principal (PP) agency costs, and interprets them as a form of minority shareholder expropriation that decreases firm performance. Taking a value creation perspective of corporate governance, however, we propose a more nuanced role for PBC. Specifically, we see them also as PP agency benefits that compensate controlling shareholders for their monitoring and advisory services, which can increase firm performance. Since both PP costs and benefits affect firm performance, we theorize that PBC enhance firm performance at a diminishing rate. Furthermore, we show that the effect of PBC on firm performance is more positive when country‐level external governance mechanisms are strong.

Suggested Citation

  • Steve Sauerwald & Pursey P. M. A. R. Heugens & Roxana Turturea & Marc van Essen, 2019. "Are All Private Benefits of Control Ineffective? Principal–Principal Benefits, External Governance Quality, and Firm Performance," Journal of Management Studies, Wiley Blackwell, vol. 56(4), pages 725-757, June.
    • Handle: RePEc:bla:jomstd:v:56:y:2019:i:4:p:725-757
    DOI: 10.1111/joms.12420
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    Cited by:

    1. Anish Purkayastha & Vishal K. Gupta, 2023. "Business group affiliation and entrepreneurial orientation: Contingent effect of level of internationalization and firm’s performance," Asia Pacific Journal of Management, Springer, vol. 40(2), pages 847-876, June.
    2. Gama, Marina Amado Bahia & Bandeira-de-Mello, Rodrigo, 2021. "The effect of affiliation structure on the performance of pyramidal business groups," Journal of Business Research, Elsevier, vol. 124(C), pages 24-37.
    3. Stewart, Alex, 2020. "Family control, ambivalence, and preferential benefits," Journal of Family Business Strategy, Elsevier, vol. 11(4).

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