Thursday, June 23, 2005

What if the Manager is also the controlling shareholder?

In the case when the Manager is also the controlling shareholder he can then expropriate the minority shareholders and use the fund raised for his own benefits instead of for the better return of the corporation because he is not personally liable to default. In this case ownership and control are mixed and the Manager will not be an effective agent for other shareholder. Due to informational asymmetry he'll have opportunity to exploit for his own advantage.

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