Is the separation between ownership and control a good proxy for minority
shareholder expropriation?

28 Pages Posted: 17 Apr 2024 Last revised: 19 Oct 2024

See all articles by Yaohua Qin

Yaohua Qin

Beijing Normal University-Hong Kong Baptist University United International College

Aris Stouraitis

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences

Date Written: October 19, 2024

Abstract

Numerous studies have used the difference (wedge) between ownership (or cash flow) and
control rights as a proxy for the unobservable risk of minority shareholder expropriation or
agency costs between controlling and minority shareholders. They attribute the negative
relationship between the wedge and firm value, found in previous studies, to the risk of
expropriation of minority shareholders or agency costs. However, the results of this paper
suggest that the wedge is endogenous and related to firm characteristics which drive the
position of the firm within the pyramid but are unrelated to the risk of expropriation. We
show that the significance of the wedge disappears when it is included alongside these firm
characteristics. So, any power of the wedge to explain firm value can be attributed to the
effect of firm characteristics that endogenously determine the position of the firm within a
pyramidal structure, and not on the risk of expropriation. We conclude that the findings of
previous studies need to be reinterpreted in view of the finding that the widely used
measure of the separation between ownership and control is neither a good nor a clean
proxy for the risk of expropriation of minority shareholders, tunneling or agency costs.

Keywords: control rights, cash flow rights, expropriation, ownership concentration, wedge

JEL Classification: G14, G34, F23, K42, M14

Suggested Citation

Qin, Yaohua and Stouraitis, Aristotelis,
Is the separation between ownership and control a good proxy for minority
shareholder expropriation?
(October 19, 2024). Available at SSRN: https://ssrn.com/abstract=4797752 or http://dx.doi.org/10.2139/ssrn.4797752

Yaohua Qin

Beijing Normal University-Hong Kong Baptist University United International College

Guangdong
China

Aristotelis Stouraitis (Contact Author)

Hong Kong Baptist University (HKBU) - Department of Finance and Decision Sciences ( email )

Hong Kong

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