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The Effect of Private Benefits of Control on Minority Shareholders: A Theoretical Model and Empirical Evidence from State Ownership

Author

Listed:
  • Kerry Liu

    (Economist at a major international bank in Sydney, Australia)

Abstract

Purpose: The purpose of this paper is to examine the effect of private benefits of control on minority shareholders. Design/methodology/approach: A theoretical model is established. The empirical analysis includes hand-collected data from a wide range of data sources. OLS and 2SLS regression analysis are applied with Huber-White standard errors. Findings: The theoretical model shows that, while private benefits are generally harmful to minority shareholders, the overall effect depends on the size of large shareholder ownership. The empirical evidence from government ownership is consistent with theoretical analysis. Research limitations/implications: The empirical evidence is based on a small number of hand-collected data sets of government ownership. Further studies can be expanded to other types of ownership, such as family ownership and financial institutional ownership. Originality/value: This study is the first to theoretically analyse and empirically test the effect of private benefits. In general, this study significantly contributes to the understanding of the effect of large shareholder and corporate governance.

Suggested Citation

  • Kerry Liu, 2017. "The Effect of Private Benefits of Control on Minority Shareholders: A Theoretical Model and Empirical Evidence from State Ownership," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 10(2), pages 26-34, June.
    • Handle: RePEc:tei:journl:v:10:y:2017:i:2:p:26-34
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    References listed on IDEAS

    as
    1. Villalonga, Belen & Amit, Raphael, 2006. "How do family ownership, control and management affect firm value?," Journal of Financial Economics, Elsevier, vol. 80(2), pages 385-417, May.
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    4. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    5. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, April.
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    7. Albuquerque, Rui & Schroth, Enrique, 2010. "Quantifying private benefits of control from a structural model of block trades," Journal of Financial Economics, Elsevier, vol. 96(1), pages 33-55, April.
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    More about this item

    Keywords

    private benefits of control; minority shareholder; large shareholder; state ownership;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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