Media supervision and large shareholder's expropriation: A theoretical framework

We develop an analytically tractable dynamic stochastic model to investigate the effect of media on controlling shareholders and the related welfare implications. Our model shows that, under media supervision, controlling shareholders' tunneling behavior decreases the welfare of minority shareholders, and affects themselves through two offsetting effects: Wealth reallocation effect and value impairment effect. The equilibrium expropriating ratio (of firm value) depends on the tradeoff between these two effects. Moreover, media supervision's sensitivity and intensity will decrease controlling shareholders' equilibrium expropriation ratio. We further show that the collusion of controlling shareholders and media will make controlling shareholders' expropriation more aggressive, which brings in a larger welfare loss to minority shareholders.