Shareholders’ Protection and the Ability to Play the Game: Means, Motive and Opportunity to Tunnel

Governance and finance literature warns that majority shareholders can extract private benefits of control at the expense of minority shareholders. Yet, results of empirical research are mixed and fragmented so that both academics and practitioners are left with no clear statement regarding the extent of expropriation in practice. We highlight several problems that might explain such fragmentation and offer some possible solutions. We also develop a theoretical framework of the contingencies that give controlling shareholders the potential ability, the incentive and the opportunity to expropriate. We test our hypotheses on a global sample consisting of 225 acquisitions of non-controlling stakes in listed companies. Our results provide support for the argument that protection of shareholders’ interests affect the ability of controlling owners to extract private benefits and to artificially deflate firms’ performance. However, the crucial insight that we gather from our results is an intuition about how institutions matter. In particular, our findings suggest that being familiar with regulation that protects shareholders’ rights is more important than the absolute level of protection that investors are granted. In other words, being able to play the game matters more than the rules of the game.