Protecting Minority Shareholders in Closely Held Firms
Author: Chad Leechor Date: 7/1/1999 (PDF, 200KB)
In all but a few advanced countries most publicly listed corporations are closely held, with the main shareholder typically playing an active role in management. In emerging markets firms with active owner-managers provide effective business solutions where business environments are characterized by corruption and weak contract enforcement. But they also pose a significant risk of asset expropriation for minority shareholders. To promote investor confidence and develop successful securities markets, this risk must be mitigated. Some policy analysts argue that the way to do this is to restrict ownership concentration. This Note argues instead for mitigating risk by strengthening corporate laws to safeguard minority shareholdings, by ensuring that markets for corporate control work, and by enforcing disclosure requirements for firms and ethical standards for public officials.