Abstract

http://ssrn.com/abstract=1138257
 


 



'The Good, the Bad, and the Ugly': Private Benefits of Control and Their Regulatory Implications


Alessio M. Pacces


Erasmus School of Law, Erasmus University Rotterdam - Rotterdam Institute of Law and Economics; European Corporate Governance Institute


Corporate Ownership and Control, Vol. 5, No. 4, pp. 477-491, Summer 2008

Abstract:     
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 independently 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.

Keywords: entrepreneurship, private benefits of control, entrenchment, comparative corporate governance, ownership structure, takeovers, Coase Theorem, agency costs, incomplete contracts, control premium

JEL Classification: G34, K22, K42, L26, O16

Accepted Paper Series


Not Available For Download

Date posted: May 29, 2008 ; Last revised: January 17, 2009

Suggested Citation

Pacces, Alessio M., 'The Good, the Bad, and the Ugly': Private Benefits of Control and Their Regulatory Implications. Corporate Ownership and Control, Vol. 5, No. 4, pp. 477-491, Summer 2008. Available at SSRN: http://ssrn.com/abstract=1138257

Contact Information

Alessio Maria Pacces (Contact Author)
Erasmus School of Law, Erasmus University Rotterdam - Rotterdam Institute of Law and Economics ( email )
Burgemeester Oudlaan 50
P.O. Box 1738
Rotterdam, Zuid Holland 3000 DR
Netherlands
+31-(0)10-4081613 (Phone)
+31-(0)10-4089191 (Fax)
HOME PAGE: http://www.esl.eur.nl/profile_az/?tx_eurliaatmetismis_pi1%5Bmetis_id%5D=1050049
European Corporate Governance Institute ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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