Leon Yehuda Anidjar (Hebrew University of Jerusalem - Faculty of Law) has posted The Theoretical Foundations of Corporate Ownership Structure and the Ongoing Debate over Global Convergence of Corporate Law and Governance on SSRN. Here is the abstract:
This essay has two main objectives. The first objective is primarily descriptive and involves a systematic and comprehensive presentation of the theoretical background underlying the concentrated and diffuse ownership structures characteristic of public companies in various countries. In this context, I will present the different streams of thought that discussed the legal, economic, historical and political factors that underlie the differences in the ownership and control structures of public companies. I will also discuss innovative theories recently articulated in the legal literature regarding the traditional agency problem in concentrated and diffuse ownership structures. I will discuss in depth the Idiosyncratic Vision theory of Prof. Goshen and Hamdani, who intended to establish a new theory that seeks to challenge the common assumption that controlling shareholders often act out of opportunistic motives intended to conflict harm on the minority shareholders. Similarly, I will also deal with the theory of the Principal Costs of the scholars Goshen and Squire, which sought to provide a new theoretical basis for the conflict of interest between shareholders and company managers in a company with diffuse ownership structure. Furthermore, I will review the economic and empirical literature that examined the correlation between the adoption of either a concentrated or diffuse ownership structure and the performance of the company, its profitability and its ability to compete in international markets. The second goal is a normative one and is grounded in the argument that each of the ownership structure has its relative benefits and costs which may not facilitate a clear and decisive preference between them. Therefore, rather than struggling for selection of a specific corporate ownership structure, policymakers and Jurists should design specific and more accurate legal mechanisms which prevent dominant parties (such as controlling shareholders or managers) to pursue their private interests which are not compatible with the benefit of the Company This essay implements this general argument in the context of the debate over the objective companies should promote and the controversy on whether we shall see in the near future a convergence of corporate law and regulation across nations. Therefore, this essay calls for a more nuanced and delicate arrangement designed to address the agency problems taking into consideration the particular attributes of the public company and the relevant market. This essay is structured as follows. In part I, I survey the theoretical foundations of concentrated and diffuse corporate ownership structure. I discuss the main economic and political currents of thoughts which address the question of global convergence of corporate governance regimes around the world. In part II, I discuss the most recent theoretical literature concerning the agency problem common in markets with concentrated or diffuse ownership pattern. Furthermore, I analyze the empirical research on this subject and argue that we cannot draw a conclusive judgment regarding the preferability of one of the corporate ownership structures. In part III, I present the normative argument which states that in the absence of a definite preference for one of the corporate ownership structures, legislators and courts are required to design the contents of corporate law in accordance with the unique features of the company and the relevant market. I then consider this general argument in the context of the debate over the purpose corporations must promote and the discussion on global convergence of corporate law and regulations. I will then summarize my conclusions.
