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ARE ALL PRIVATE BENEFITS OF CONTROL INEFFECTIVE? PRINCIPAL-PRINCIPAL BENEFITS, EXTERNAL GOVERNANCE QUALITY, AND FIRM PERFORMANCE
Journal
Journal of Management Studies
ISSN
0022-2380
Type
forthcoming
Author(s)
Abstract (De)
ted Article
This article is protected by copyright. All rights reserved.
MARC VAN ESSEN
Darla Moore School of Business
University of South Carolina
and
EMLYON Business School
E-Mail: marc.vanessen@moore.sc.edu
October 2018
____________________
We appreciate the constructive guidance from JMS editor Donald Siegel and three anonymous
reviewers. We also appreciate helpful comments from seminar participants at the 2015
Academy of Management Annual Meeting in Vancouver and the 2016 International Corporate
Governance Society (ICGS) Conference in Boston.
ARE ALL PRIVATE BENEFITS OF CONTROL INEFFECTIVE?
PRINCIPAL-PRINCIPAL BENEFITS, EXTERNAL GOVERNANCE QUALITY, AND FIRM
PERFORMANCE
ABSTRACT
Private benefits of control (PBC) are benefits that controlling shareholders consume, but that
are not shared with minority shareholders. Research focusing on the value protection role of
corporate governance typically frames PBC as principal-principal (PP) agency costs, and
interprets them as a form of minority shareholder expropriation that decreases firm
performance. Taking a value creation perspective of corporate governance, however, we
propose a more nuanced role for PBC. Specifically, we see them also as principal-principal (PP)
agency benefits that compensate controlling shareholders for their monitoring and advisory
services, which can increase firm performance. Since both PP costs and benefits affect firm
performance, we theorize that PBC enhance firm performance at a diminishing rate.
Furthermore, we show that the effect of PBC on firm performance is more positive when
country-level external governance mechanisms are strong.
This article is protected by copyright. All rights reserved.
MARC VAN ESSEN
Darla Moore School of Business
University of South Carolina
and
EMLYON Business School
E-Mail: marc.vanessen@moore.sc.edu
October 2018
____________________
We appreciate the constructive guidance from JMS editor Donald Siegel and three anonymous
reviewers. We also appreciate helpful comments from seminar participants at the 2015
Academy of Management Annual Meeting in Vancouver and the 2016 International Corporate
Governance Society (ICGS) Conference in Boston.
ARE ALL PRIVATE BENEFITS OF CONTROL INEFFECTIVE?
PRINCIPAL-PRINCIPAL BENEFITS, EXTERNAL GOVERNANCE QUALITY, AND FIRM
PERFORMANCE
ABSTRACT
Private benefits of control (PBC) are benefits that controlling shareholders consume, but that
are not shared with minority shareholders. Research focusing on the value protection role of
corporate governance typically frames PBC as principal-principal (PP) agency costs, and
interprets them as a form of minority shareholder expropriation that decreases firm
performance. Taking a value creation perspective of corporate governance, however, we
propose a more nuanced role for PBC. Specifically, we see them also as principal-principal (PP)
agency benefits that compensate controlling shareholders for their monitoring and advisory
services, which can increase firm performance. Since both PP costs and benefits affect firm
performance, we theorize that PBC enhance firm performance at a diminishing rate.
Furthermore, we show that the effect of PBC on firm performance is more positive when
country-level external governance mechanisms are strong.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
Global Center for Entrepreneurship + Innovation
Refereed
Yes
Publisher
Blackwell Publishing Limited
Subject(s)
Division(s)
Eprints ID
255884