ABSTRACT

This chapter introduces a novel taxonomy of private benefits of control with the purpose to explain different patterns of separation of ownership and control. Private benefits are divided into three categories. One includes the ‘classic’ benefits from expropriation of shareholders, which are called diversionary. The second includes the benefits from underperformance due to standard agency costs; these benefits are called distortionary. The third category – idiosyncratic private benefits of control – is the major contribution of this classification. These benefits are supposed to provide a deferred compensation for firm-specific investments in entrepreneurship. Entrenchment of corporate control is required to secure such a reward.