Government Ownership and Private Benefits of Control in Russian Companies

Little is known about the impact of the identity of the largest shareholder on voting premium in dual-class companies. Furthermore, there is only a small research base relating to state as a dominant shareholder. Built on a voting premium approach model which establishes a direct link between voting premium and private benefits of control, the present study aims to quantify the influence of government as a major shareholder on the size of private benefits of control in Russian dual-class companies. We divide government ownership into direct and indirect property and account for different voting stakes that state as the majority shareholder owns. Specifically, two ownership stakes are assessed in this study: simple majority and qualified majority of votes. By conducting a regression analysis on the data between 2011 and 2018, we find negative correlation between private benefits and state with a voting stake of more than 50 percent, and positive correlation - when state owns more than 75 percent of voting shares. Since our estimation sample has limited number of observations, in particular it relates to direct government ownership, results are interpreted with caution. Overall, this study advances our understanding of the role of state in dual-class companies and its incentives in retaining control over a company. Particularly, we have proved that state can both protect the rights of minority shareholders from expropriation by large stock holders, and, vica versa, can pursue its own goals by deriving private benefits of control.