Governance mechanism, expropriation and controlling shareholders´ shares

Based on agency theory, this study discusses how a firm arranges its controlling shareholders´ shares in order to eliminate the expropriation on minority shareholders. The study finds that the controlling shareholders´ shares should at least exceed some proportion. The stronger the level of internal monitoring is, the higher the quality of external governance mechanism is, the lower the lowest controlling shareholders´ shares to eliminate expropriation will be required. The study also finds that the internal and external corporate governance mechanism can be complemented each other, and co-determine the lowest controlling shareholders´ shares required to eliminate expropriation. In addition, the ability of controlling shareholders to obtain private benefits has also an important impact on the required lowest controlling shareholders´ shares.