Book Description

Concentrated ownership is perceived as an inefficient form of ownership because it allegedly increases the risk of minority expropriation, which is further exacerbated by the disproportionality of control and cash-flow rights of the controller. This thesis challenges the perception of concentration as a per se inefficient ownership structure. It argues that the 'inefficiency bias' is based on the oversimplified, incorrect assumption that concentration is characterised by the presence of one controlling shareholder and therefore disregards the variety of the forms of concentration. To substantiate this argument, this thesis categorises the forms of concentration based on the identity and number of the controllers and examines their impact on corporate governance. It is shown, that the distinct characteristics of the varieties of shareholders' profiles have an ambivalent impact on corporate governance: Families are strongly committed investors but also prone to extract private benefits of control; the state is inefficient in monitoring but can also be a driver of good corporate governance practices; multiple large shareholders improve internal contestability of control but shareholders' agreements can also be used for minority expropriation. In this context, the effectiveness of the legal framework to mitigate the arising corporate governance problems becomes the key factor which differentiates efficient from inefficient corporate ownership structures. The different corporate governance problems of concentration imply that adapted legal solutions and adequately flexible rules are the prerequisites of effective investor protection. Given the varieties of concentration, legal effectiveness and strong investor protection can therefore only be defined by reference to a given ownership structure. This thesis presents concrete examples of investor protection mechanisms which are adapted to the distinct characteristics of the varieties of concentration: In the case of family and state ownership, effective minority protection takes the form of special minority rights of board-representation; within multiple large blockholdings, shareholders' agreements limit the abuse of the governance rights of majority shareholders. Ultimately, the thesis deals with the implications of this complex interaction between ownership structures and corporate governance which compromise the reliability of indices as a metric of the quality of corporate governance, to the extent that the applied methodology fails to encompass the differences in shareholders' profiles and that a functional approach to the substantive legal analysis preceding the compilation of an index is not adopted.