Controlling Shareholders and Intra-Group Transactions: A Special Framework
| Autore | Alperen Af?in Gözlügöl |
| Carica | Leibniz Institute for Financial Research SAFE |
| Pagine | 67-91 |
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hps://doi.org/10.6092/issn.2531‐6133/15236
Received: 01 Sep. 2021 | Accepted: 10 Jan. 2022 | Published: 19 July 2022
A
Controlling Shareholders and Intra‐Group Transacons: A
Special Framework
A
LPEREN
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IN
Gö
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Alperen Afşin Gözlügöl is an Advanced Researcher in the Law & Finance cluster of the Leibniz
Institute for Financial Research SAFE, Frankfurt am Main(Germany). For valuable comments, the
author would like to thank Wolf-Georg Ringe and the anonymous reviewer.
@gozlugol@safe-frankfurt.de
ID0000-0001-7104-7197
ABSTRACT
Controlling shareholders and their activities in publicly traded companies have long stirred
debate and controversy. Still dominating the corporate landscape across the world, concentrated
ownership has been associated with both extraction of private benefits of control (P.B.C.) and
entrepreneurship. Drawing on the theories on corporate control, this article contributes to
accomplishing the law’s goal of promoting the entrepreneurial role of controlling shareholders,
yet keeping P.B.C. extraction under restraint at the same time in the specific context of
intra-group transactions – a breeding ground for both P.B.C. extraction and the implementation
of an entrepreneurial idea by corporate controllers. The article submits nuanced and different
means of overseeing intra-group transactions in a way that would optimally allow the
implementation of a business plan by a controlling shareholder in a corporate group and protect
minority shareholders, along with the examination of other issues that are relevant to the
oversight of intra-group transactions.
KEYWORDS
Controlling Shareholders; Related-party Transactions; Intra-groupTransactions; Corporate Groups;
Minority Shareholder Protection
67
CONTROLLING SHAREHOLDERS AND INTRA-GROUP TRANSACTIONS
TABLE OF CONTENTS
Introduction ............................................ 68
1. Corporate Controllers: Thievesor Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . 70
2.Intra-GroupTransactions.................................... 72
2.1. Intra-Group Transactions Involving Homogenous Products/Services . . . . . . 75
2.2. Intra-Group Transactions Involving Differentiated/Special Products/Services . 77
2.3. Other Issues Regarding the Oversight of Intra-Group Transactions . . . . . . . . 86
Conclusion ............................................. 90
INTRODUCTION
In most jurisdictions across the world, share ownership of public companies is
characterised by a blockholding that effectively grants the control of the company to
that shareholder.1While the existence of a controlling shareholder is associated with
certain benefits, it also gives rise to a conflict of interest between the controlling
shareholders and minority shareholders.2Most importantly, controlling shareholders
can extract P.B.C.3to the detriment of the company and thus, of minority shareholders.4
Corporate controllers take different shapes.5And the question of why these
corporate controllers hold onto the control of the company rather than disposing of the
1Only in the U.S., the U.K. and partly in Japan, dispersed share ownership is more common. See,e.g., Rafael
La Porta et al., Corporate Ownership Around the World, 54 J. F
IN
. 471 (1999); Mara Faccio & Larry H.P. Lang,
The Ultimate Ownership of Western European Corporations, 65 J. F
IN
. E
CON
. 365 (2002); Julian Franks et al., The
Ownership of Japanese Corporations in the 20th Century, 27 R
EV
. F
IN
. S
TUD
. 2580 (2014); Stijn Claessens et al., The
Separation of Ownership and Control in East Asian Corporations, 58 J. F
IN
. E
CON
. 81 (2000).
2See John Armour,Henry Hansmann & Reinier Kraakman, Agency Problems and Legal Strategies,in T
HE
A
NATOMY
OF
C
ORPORATE
L
AW
29, 30 (Reinier Kraakman et al. eds., 2017).
3On private benefits of control, see Ronald J. Gilson, Controlling Shareholders and Corporate Governance:
Complicating the ComparativeTaxonomy, 119 H
ARV
. L. R
EV
. 1641, 1663 (2006) (distinguishing between pecuniary
private benefits of control and non-pecuniary private benefits of control). The former is defined as “the
nonproportional flow of real resources from the company to the controlling shareholder” while the latter
indicates “forms of psychic and other benefits that, without more, involve no transfer of real company
resources and do not disproportionately dilute the value of the company’s stock to a diversified investor
such as social or political status resulting from the control of a large company.” Id. at 1663–64.
4These private benefits of control are documented in studies that examine the control premia charged for
controlling blocks or the price differentials between high- and low-voting shares. See Michael J. Barclay &
Clifford G. Holderness, Private Benefits from Control of Public Corporations, 25 J. F
IN
. E
CON
. 371 (1989); Alexander
Dyck & Luigi Zingales, Private Benefits of Control: An International Comparison, 59 J. F
IN
. 537 (2004); Tatiana
Nenova, The Value of CorporateVoting Rights and Control: A Cross-Country Analysis, 68 J. F
IN
. E
CON
. 325 (2003).
Some studies also show that the market values the same cash flows/investments differently, depending on
whether they can be expropriated by controlling shareholders or not, which reflects again privatebenefits
of control. See,e.g., Bernard S. Black et al., Does Corporate Governance Predict Firms’ Market Values? Evidence from
Korea, 22 J. L. E
CON
. & O
RG
. 366 (2006); Bronwyn H. Hall & Raffaele Oriani, Does the Market Value R&D Investment
by European Firms? Evidence from a Panel of Manufacturing Firms in France, Germany, and Italy, 24 I
NT
’
L
J. I
NDUS
.
O
RG
. 971 (2006).
5Corporate controllers can be companies, individuals, families, institutional investors, the state etc.
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