Publication: Protecting Minority Shareholders in Closely Held Firms
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Date
1999-07
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Published
1999-07
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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. Such a step could cause serious harm. This Note argues instead for mitigating risk by strengthening corporate laws to safeguard minority shareholdings, ensuring that markets for corporate control work, and enforcing disclosure requirements for firms and ethical standards for public officials. Modern publicly traded corporations are commonly perceived to have widely dispersed ownership and a separation of ownership and control, with the control delegated to professional managers. The owners of the firm rely on the board of directors to supervise the managers, voting only on major strategic decisions. The key issue of corporate governance in this situation is to ensure that managers act in the best interest of the shareholders. The board therefore plays a pivotal role.
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“Leechor, Chad. 1999. Protecting Minority Shareholders in Closely Held Firms. Viewpoint. © World Bank. http://hdl.handle.net/10986/11471 License: CC BY 3.0 IGO.”
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