Concentrated Ownership Revisited: The Idiosyncratic Value of Corporate Control

This Article offers a new understanding of concentrated ownership ? the prevalent form of corporate ownership around the world ? by developing a framework for evaluating many corporate ownership patterns and exploring the resulting legal and economic implications. The predominant view within economic and legal scholarship contends that controlling shareholders? incentive for holding a control block is their desire to extract private benefits of control. Our analysis, however, shows that corporate control is valuable for entrepreneurs wishing to secure the idiosyncratic value that they ascribe to their business idea, while consuming private benefits is the pathology of holding control. Specifically, we demonstrate that the controlling-shareholder ownership structure can be explained as an allocation of control and cash-flow rights balancing the controller?s freedom to pursue idiosyncratic value against minority shareholders? need for protection from agency costs. The idiosyncratic-value/agency-cost framework provides new insights for both theory and doctrine. As a matter of theory, we question the view that private benefits of control are vital for controlling shareholders, that improved monitoring or management explains the controlling-shareholder structure, and that the size of control premiums is a good proxy for the quality of investor protection. As a matter of doctrine, we explore the key features of corporate law for publicly-traded firms with controlling shareholders, and illustrate how corporate law doctrines are shaped, and should be shaped, by the inevitable tension between the controller?s need to secure idiosyncratic value and minority protection from agency costs. While the corporate law literature has focused solely on minority shareholders? protection, we show that an equally important focus should be given to controllers? rights.