Corporate Law and Ownership Structure: A Darwinian Link?

Abstract

The matters thesis posits that a legal regime which allows investors to feel confident about owning a tiny percentage of shares in a firm constitutes the crucial bedrock underlying an economy where widely-held public companies dominate. This paper draws attention to and provides a critique of a pivotal assumption embedded within the thesis, this being that a separation of ownership and control offers inherent economic advantages and therefore is the natural state of affairs for large business enterprises. The opening sections of the paper identify the essential attributes of the matters argument and discuss how the thesis is related to the proposition that diffuse share ownership is associated with efficiency. The paper then assesses whether a separation of ownership and control is likely to provide a competitive edge. In so doing, due account will be taken of evidence that casts doubt upon the idea that this sort of ownership structure is natural in a market economy. The paper concludes with some observations on the circumstances under which the introduction of stronger legal protection for minority shareholders might foster a move towards diffuse share ownership and on certain risks associated with law reform of this character.