Abstract
This study aims to analyze the core in production economies with private benefits of control. We consider two types of shareholders in a firm: small shareholders and the controlling shareholder. Unlike small shareholders, the controlling shareholder’s utility increases not only with the consumption of goods but also with private benefits related to the production level of the firm and his controlling power. We observe that the private benefits of control are allowed in the core only when the transferred utility from the controlling shareholder to small shareholders is higher than the small shareholders’ utility loss from private benefits.
References
Aggarwal, R. K., and A. A. Samwick. 2006. “Empire-Builders and Shirkers: Investment, Firm Performance, and Managerial Incentives.” Journal of Corporate Finance 12: 489–515. https://doi.org/10.1016/j.jcorpfin.2006.01.001.Search in Google Scholar
Aivazian, V. A., and J. L. Callen. 1981. “The Coase Theorem and the Empty Core.” The Journal of Law and Economics 24: 175–81. https://doi.org/10.1086/466979.Search in Google Scholar
Baldenius, T. 2003. “Delegated Investment Decisions and Private Benefits of Control.” The Accounting Review 78: 909–30. https://doi.org/10.2308/accr.2003.78.4.909.Search in Google Scholar
Bergman, N. K., and D. Nicolaievsky. 2007. “Investor Protection and the Coasian View.” Journal of Financial Economics 84: 738–71. https://doi.org/10.1016/j.jfineco.2005.11.003.Search in Google Scholar
Brandenburger, A., and H. Stuart. 2007. “Biform Games.” Management Science 53: 537–49. https://doi.org/10.1287/mnsc.1060.0591.Search in Google Scholar
Claessens, S., S. Djankov, and L. H. Lang. 2000. “The Separation of Ownership and Control in East Asian Corporations.” Journal of Financial Economics 58: 81–112. https://doi.org/10.1016/s0304-405x(00)00067-2.Search in Google Scholar
Dyck, A., and L. Zingales. 2004. “Private Benefits of Control: An International Comparison.” The Journal of Finance 59: 537–600. https://doi.org/10.1111/j.1540-6261.2004.00642.x.Search in Google Scholar
Grossman, S. J., and O. D. Hart. 1980. “Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation.” The Bell Journal of Economics 11: 42–64. https://doi.org/10.2307/3003400.Search in Google Scholar
Haller, H. 1991. “Corporate Production and Shareholder Cooperation under Uncertainty.” International Economic Review 32: 823–42. https://doi.org/10.2307/2527036.Search in Google Scholar
Jensen, M. C., and W. H. Meckling. 1976. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics 3: 305–60. https://doi.org/10.1016/0304-405x(76)90026-x.Search in Google Scholar
Kang, J., and J. S. Kim. 2006. “Private Benefits of Control and Firm Leverage: An Analysis of Korean Firms.” Review of Quantitative Finance and Accounting 27: 439–63. https://doi.org/10.1007/s11156-006-0046-z.Search in Google Scholar
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny. 1999. “Corporate Ownership Around the World.” The Journal of Finance 15: 222–79.10.3386/w6625Search in Google Scholar
La Porta, R., F. Lopez-de-Silanes, A. Shleifer, and R. Vishny. 2000. “Investor Protection and Corporate Governance.” Journal of Financial Economics 58: 3–27. https://doi.org/10.1016/s0304-405x(00)00065-9.Search in Google Scholar
Lee, K., and F. D. Oh. 2022. “Mandatory Disclosure, Investment, and Private Benefits of Control.” Economics Letters 216: 110568. https://doi.org/10.1016/j.econlet.2022.110568.Search in Google Scholar
Lin, C. Y., W. C. Tsai, and I. Hasan. 2018. “Private Benefits of Control and Bank Loan Contracts.” Journal of Corporate Finance 49: 324–43. https://doi.org/10.1016/j.jcorpfin.2018.01.006.Search in Google Scholar
Oh, F. D., and J. Park. 2022. “Managerial Incentives and the Medium of Exchange in Takeovers.” Managerial and Decision Economics 43: 4077–86, https://doi.org/10.1002/mde.3656.Search in Google Scholar
Oh, F. D., and K. S. Park. 2016. “Corporate Governance Structure and Product Market Competition.” Applied Economics 48: 1281–92. https://doi.org/10.1080/00036846.2015.1096009.Search in Google Scholar
Oh, F. D., and S. S. Shin. 2020. “Does Product Market Competition Affect Corporate Governance? Evidence from Corporate Takeovers.” Journal of Empirical Finance 59: 68–87. https://doi.org/10.1016/j.jempfin.2020.09.001.Search in Google Scholar
Sauerwald, S., P. P. Heugens, R. Turturea, and M. Van Essen. 2019. “Are All Private Benefits of Control Ineffective? Principal-Principal Benefits, External Governance Quality, and Firm Performance.” Journal of Management Studies 56: 725–57. https://doi.org/10.1111/joms.12420.Search in Google Scholar
Stulz, R. 1990. “Managerial Discretion and Optimal Financing Policies.” Journal of Financial Economics 26: 3–27. https://doi.org/10.1016/0304-405x(90)90011-n.Search in Google Scholar
Telser, L. G. 1994. “The Usefulness of Core Theory in Economics.” The Journal of Economic Perspectives 8: 151–64. https://doi.org/10.1257/jep.8.2.151.Search in Google Scholar
Xiong, S., and C. Z. Zheng. 2007. “Core Equivalence Theorem with Production.” Journal of Economic Theory 137: 246–70. https://doi.org/10.1016/j.jet.2007.01.009.Search in Google Scholar
Zhang, X., X. Liang, and H. Sun. 2013. “Individualism-Collectivism, Private Benefits of Control, and Earnings Management: A Cross-Culture Comparison.” Journal of Business Ethics 114: 655–64. https://doi.org/10.1007/s10551-013-1711-5.Search in Google Scholar
Zheng, C. Z. 2010. “A Coase Theorem Based on a New Concept of the Core.” In Working Paper. Iowa State University.Search in Google Scholar
© 2022 Walter de Gruyter GmbH, Berlin/Boston
