Beyond External Constraints on Expropriation of Minority Investors : Preference Heterogeneity, Locus of Control and Firm Valuation

Contrary to previous research which focuses largely on external constraints on expropriation of minority investors, this paper investigates how psychological and socio-political factors affect principal-principal conflicts of interest in firms. We rely on preference heterogeneity and locus of control research to hypothesize about the impact of control types on firm valuation. Our empirical analysis shows that market participants perceive large shareholders' preference heterogeneity and that control types represent discrete governance contexts with a unique set of conditions, each related to a different level of principal-principal conflicts of interest. We discuss the consequences thereof to minority investors. We conclude about the implications of our results for research on principal-principal conflicts of interests particularly from the point of view of contexts with a reasonable level of minority shareholder protection