The high ownership concentration can also serve as a credible commitment that the controlling owner is willing to build a reputation for not expropriating minority shareholders (Gomes, 2000). The commitment is credible because minority shareholders know that if the controlling owner unexpectedly extracts high levels of private benefits when he/she still holds a substantial amount of shares, they will discount the stock price accordingly, and the majority owner’s share value will be reduced. In equilibrium, the majority shareholder will hold a large ownership stake and the stock price of the company will be higher. Thus, ownership concentration has an incentive alignment effect: increasing an owner’s share ownership beyond.
