Are All Private Benefits of Control Ineffective? Principal–Principal Benefits, External Governance Quality, and Firm Performance

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 for...

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Bibliographic Details
Published in:Journal of management studies 2019-06, Vol.56 (4), p.725-757
Main Authors: Sauerwald, Steve, Heugens, Pursey P. M. A. R., Turturea, Roxana, van Essen, Marc
Format: Article
Language:English
Subjects:
Advisory services
Business administration
comparative corporate governance
control transactions
controlling shareholders
Corporate governance
Economics and Finance
Expropriation
firm performance
Humanities and Social Sciences
institutions
Minority stockholders
Organizational performance
private benefits of control
Stockholders
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Summary: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 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.
ISSN:0022-2380
1467-6486
DOI:10.1111/joms.12420