Controlling Shareholders in the Twenty-First Century: Complicating Corporate Governance Beyond Agency Costs

45 Journal of Corporation Law (2020, Forthcoming)

European Corporate Governance Institute - Law Working Paper No. 483/2019

28 Pages Posted: 25 Nov 2019 Last revised: 10 Dec 2019

See all articles by Mariana Pargendler

Mariana Pargendler

Fundação Getulio Vargas Law School at São Paulo; New York University School of Law; European Corporate Governance Institute

Date Written: November 12, 2019

Abstract

By the end of the twentieth century, the then-dominant literature on “law and finance” assumed that concentrated ownership was a product of deficient legal systems that did not sufficiently protect outside investors. At the same time, commentators posited that the competitive pressures of economic globalization would push countries around the world to adopt an efficient regime of strong investor protection, which was thought to facilitate ownership dispersion. Nevertheless, at the dawn of the 2020s, ownership concentration not only persists, but appears to be on the rise among the world’s largest companies. This symposium essay in honor of Ronald Gilson explores what went wrong with the original predictions from two decades ago and the resulting lessons for corporate governance analysis. It shows that the focus on agency costs that dominated the earlier literature overlooked the fact that corporate governance structures are both (i) influenced by factors beyond tradeoffs in agency costs (such as non-pecuniary private benefits of control and nationalism), and (ii) affect social welfare in ways other than through their effects on investor protection. The essay then reflects on the emerging challenges to what I call the “modularity approach” to corporate law scholarship, and contemporary law-and-economic analysis more generally, which stipulates that each area of law should serve one key efficiency objective.

Keywords: controlling shareholders, corporate governance, nationalism, modularity

JEL Classification: K10, K22, L21, L50, O16

Suggested Citation

Pargendler, Mariana, Controlling Shareholders in the Twenty-First Century: Complicating Corporate Governance Beyond Agency Costs (November 12, 2019). 45 Journal of Corporation Law (2020, Forthcoming), European Corporate Governance Institute - Law Working Paper No. 483/2019, Available at SSRN: https://ssrn.com/abstract=3474555 or http://dx.doi.org/10.2139/ssrn.3474555

Mariana Pargendler (Contact Author)

Fundação Getulio Vargas Law School at São Paulo ( email )

R. Rocha, 233, Bela Vista
São Paulo, 01330-000
Brazil

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

European Corporate Governance Institute ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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