The Formation and Regulation of Controlling Shareholders
Date Issued
2007
Date
2007
Author(s)
Pang, Carol Yuan Chi
DOI
zh-TW
Abstract
This paper begins with the prevalence of controlling shareholders around the world, especially in countries with poor legal protection of minority shareholders. Such structure poses different agency problems than a dispersed structure: the controlling shareholder is insulated from electoral challenge, but its interests may be unaligned with the company due to low cash-flow rights. This situation puts extremely large pressure on the corporate governance mechanism.
How the controlling shareholder structure should be regulated concerns a judgment on the desirability of this structure. Its prevalence in countries with poor protection unavoidably triggers suspicion that it is merely a vehicle to exploit minority shareholders. Accordingly, we must first begin with a thorough assessment of this structure, and construct an analytical framework for future regulation.
Regardless of our eventual judgment on controlling structures, short of banning it altogether, we can foresee that this structure will still exist to some degree. This paper presents two angles for regulation: the deviation between control and cash-flow rights, and the extraction of private benefits of control.
Deviation involves both the pros and cons of a minority controlling structure, and thus presents a need for balancing by the legislator. The lessening of the extraction of private benefits of control necessitates the separate obligation of controlling shareholders as opposed to nominal control persons. In this regard, this paper discusses the contours of this obligation in cases of self-dealing, freeze-outs, normal operations and sale of control.
Subjects
控制股東
股權結構
現金流量權
強制公開收購
逐出
自我交易
controlling shareholders
ownership structure
freeze-out
mandatory bid rule
self-dealing
Type
thesis
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