Kang: Optimized Theft – Why Some Controlling Shareholders “Generously” Expropriate from Minority Shareholders


Although controlling shareholder agency problems have been well studied so far, many questions still remain unanswered.  In particular, an important puzzle in a bad-law jurisdiction is: why some controlling shareholders (“roving controllers”) loot the entire corporate assets at once, and why others (“stationary controllers”) siphon a part of corporate assets on a continuous basis.  To solve this conundrum, this Article provides analytical frameworks exploring the behaviors and motivations of controlling shareholders.  To begin with, I reinterpret Olson’s political theory of “banditry” in the context of corporate governance in developing countries.  Based on a new taxonomy of controlling shareholders (“roving controllers” and “stationary controllers”), I examine under what circumstances a controlling shareholder chooses to be roving or stationary, and why economically rational controlling shareholders with a long time horizon voluntarily abstain from looting minority shareholders.  In addition, agreeing with weaknesses of family corporations, I explain that controlling “family” shareholders tend to be more stationary, and thus improve the quality of corporate governance.  Moreover, I explain that a controlling shareholder’s non-pecuniary benefits (i.e., psychic value of corporate insiders when running business) can potentially lower the level of expropriation from public shareholders.


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