PRIVATE BENEFITS OF CONTROL VERSUS BLOCK STOCK OWNERSHIP IN FRENCH FIRMS

This research provides evidence on whether the block ownership breeds private benefits of control or that is the latter that incites the controlling holder to increase its stock ownership. Drawing on a French sample of 110 listed firms, during the period 2002- 2006, our modeling highlights a simultaneous relationship between block ownership and private benefits. Two proxies of private benefits are used: the excess managerial compensation and the amount of related-party transactions. This study provides empirical support for the rent-protection perspective in addition to the agency theory to prove the opportunistic decisions of the controlling party, either the manager or the block shareholder. It also offers insights to policy makers interested in enhancing the legitimacy of corporate governance. It is worth considering the specificities of the ownership structure and the aims of the controlling party so as to enact the suitable laws to protect the investors and enhance the investment.