Value Creation and Value Capture in Governing Shareholder Relationships: Evidence from a Policy Experiment in an Emerging Market
Strategic Management Journal, Forthcoming
42 Pages Posted: 5 Nov 2012 Last revised: 24 May 2018
Date Written: May 21, 2018
Protecting minority shareholders is a central issue in corporate governance. A common tool of empowering minority shareholders is to curb controlling shareholders’ power of expropriating firm value, but this approach was rarely successful because of the resistance from powerful controlling shareholders. We examine an alternative way of empowering minority shareholders without directly fighting with controlling shareholders. A major corporate governance reform in China gave minority shareholders a decision right over certain actions that affected the creation of firm value. We demonstrate that, the greater the extent to which minority shareholders’ actions can influence the firm’s value ex-post, the more value controlling shareholders concede to minority shareholders ex-ante. This effect becomes even stronger when controlling shareholders are able to expropriate a larger portion of firm value.
Keywords: Value Creation, Value Capture or Appropriation, Corporate Governance, Principal-Principal Conflict, Shareholder Relations, Emerging Markets
JEL Classification: L10, G30
Suggested Citation: Suggested Citation