How Can Corporate Governance Moderate the Relationship between Private Benefits of Control and Firm Performance in the French Context?

Abstract

This study examines the relationship between private benefits of control (PBC) and firm performance in the French context, investigating the moderating role of corporate governance mechanisms. Using a sample of 87 French firms from the SBF250 index over the period 2008-2018, we measure private benefits through two distinct proxies: the volume of related-party transactions (PBC1) and excessive executive compensation (PBC2). Our baseline results confirm a significant negative relationship between both measures of private benefits and firm performance (proxied by ROA). Furthermore, we find that this negative relationship is attenuated by strong corporate governance. Specifically, a high degree of contestability between the first and second largest shareholders, a greater proportion of independent directors on the board, significant institutional ownership, and a smaller board size all serve as effective moderators, mitigating the performance-damaging effects of private benefit extraction. These findings underscore the critical importance of robust governance structures in protecting shareholder value in environments characterized by concentrated ownership.