Disentangling the Incentive and Entrenchment Effects of Large Shareholdings


  • Stijn Claessens,

  • Simeon Djankov,

  • Joseph P. H. Fan,

  • Larry H. P. Lang

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    • University of Amsterdam and Centre for Economic Policy Research; World Bank and Centre for Economic Policy Research; Hong Kong University of Science and Technology; and Chinese University of Hong Kong, respectively. Joseph P. H. Fan gratefully acknowledges the Hong Kong Government's Earmarked Grant for research support. Larry H. P. Lang gratefully acknowledges the financial support of the Hong Kong Government's Earmarked Grant and Direct Grant. The authors are grateful for the helpful comments of Lucian Bebchuk, Erik Berglof, Alexander Dyck, Caroline Freund, Ed Glaeser, Simon Johnson, Tarun Khanna, Florencio Lopez-de-Silanes, Randall Morck, Tatiana Nenova, Raghuram Rajan, Henri Servaes, Daniel Wolfenzon, and Luigi Zingales, the article's two anonymous referees, seminar participants at the World Bank, International Monetary Fund, Federation of Thai Industries, Georgetown University, George Washington University, Hong Kong University of Science and Technology, Korean Development Institute, Korea Institute of Finance, Vanderbilt University, University of Illinois, University of Michigan, University of Amsterdam, 1999 National Bureau for Economic Research summer conference on corporate finance, 2000 American Economic Association annual meetings, and especially of Rafael La Porta, Andrei Shleifer, and René Stulz. An earlier version of this article was called “Expropriation of Minority Shareholders: Evidence from East Asia.” The opinions expressed here do not necessarily ref lect those of the World Bank.


This article disentangles the incentive and entrenchment effects of large ownership. Using data for 1,301 publicly traded corporations in eight East Asian economies, we find that firm value increases with the cash-flow ownership of the largest shareholder, consistent with a positive incentive effect. But firm value falls when the control rights of the largest shareholder exceed its cash-flow ownership, consistent with an entrenchment effect. Given that concentrated corporate ownership is predominant in most countries, these findings have relevance for corporate governance across the world.