Principal-Principal Agency

Corporate governance research has largely focused on principal-agent conflicts while ignoring conflicts among other participants in the corporate governance process. However, in many corporations, particularly in emerging economies, the prevalence of dominant ownership structures along with weak legal protection of minority shareholders’ shifts the “center of gravity” of conflict in the corporate governance process away from the relationship between shareholders and managers towards the relationship between majority shareholders and minority shareholders. Yet little is known about the nature of these conflicts. This article outlines the primary causes and consequences of such “principal-principal agency” conflicts. We discuss the institutional setting for these conflicts, followed by propositions regarding their propensity, magnitude, and implications for firm competitiveness.