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The trade-off between risk and control in corporate ownership

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Author Info
Manjon, M.C. (Tilburg University, Center for Economic Research)
Abstract

This paper analyses the risk control trade o$ in corporate ownership. It presents a simple model in which large shareholders decide their share depending on their risk aversion, risk-neutral effects attached to rm size and the e$ectiveness of di$erent (external and internal) mechanisms for controlling managers behaviour. Two institutional settings in which the expected benefits from control appear to overcome risk aspects are explored: the USA at the turn of the 20th century and Spain in the 1990's. The empirical evidence seems to support the predictions of the model regarding the relationship between ownership concentration, the characteristics of governance and the size of the firm.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 81.

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Date of creation: 2003
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Handle: RePEc:dgr:kubcen:200381

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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  1. Jenkinson, Tim & Ljungqvist, Alexander, 2001. "The role of hostile stakes in German corporate governance," Journal of Corporate Finance, Elsevier, vol. 7(4), pages 397-446, December. [Downloadable!] (restricted)
    Other versions:
  2. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December. [Downloadable!] (restricted)
  3. Admati, Anat R & Pfleiderer, Paul & Zechner, Josef, 1994. "Large Shareholder Activism, Risk Sharing, and Financial Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1097-1130, December. [Downloadable!] (restricted)
  4. Raghuram G. Rajan & Luigi Zingales, 1998. "Power In A Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 387-432, May. [Downloadable!] (restricted)
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  5. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 1-29, February.
    Other versions:
  6. Marc Goergen & Luc Renneboog, 2003. "Why Are the Levels of Control (So) Different in German and U.K. Companies? Evidence from Initial Public Offerings," Journal of Law, Economics and Organization, Oxford University Press, vol. 19(1), pages 141-175, April.
  7. Dennis Leech & Miguel Manjón, 2002. "Corporate Governance in Spain (with an Application of the Power Indices Approach)," European Journal of Law and Economics, Springer, vol. 13(2), pages 157-173, March. [Downloadable!] (restricted)
  8. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Liquidity and Control: A Dynamic Theory of Corporate Ownership Structure," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 127(1), pages 177-, March.
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  9. Aghion, Philippe & Bolton, Patrick, 1992. "An Incomplete Contracts Approach to Financial Contracting," Review of Economic Studies, Blackwell Publishing, vol. 59(3), pages 473-94, July. [Downloadable!] (restricted)
  10. Zingales, Luigi, 1998. "Corporate Governance," CEPR Discussion Papers 1806, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Prowse, Stephen D, 1992. " The Structure of Corporate Ownership in Japan," Journal of Finance, American Finance Association, vol. 47(3), pages 1121-40, July. [Downloadable!] (restricted)
  12. Hart, Oliver, 1995. "Corporate Governance: Some Theory and Implications," Economic Journal, Royal Economic Society, vol. 105(430), pages 678-89, May. [Downloadable!] (restricted)
  13. Leech, Dennis & Leahy, John, 1991. "Ownership Structure, Control Type Classifications and the Performance of Large British Companies," Economic Journal, Royal Economic Society, vol. 101(409), pages 1418-37, November. [Downloadable!] (restricted)
    Other versions:
  14. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
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  15. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  16. Becht, Marco, 1999. "European corporate governance: Trading off liquidity against control," European Economic Review, Elsevier, vol. 43(4-6), pages 1071-1083, April. [Downloadable!] (restricted)
  17. Burkart, Mike & Gromb, Denis & Panunzi, Fausto, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 693-728, August.
  18. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04. [Downloadable!] (restricted)
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  19. Carles Gispert, 1998. "Board turnover and firm performance in Spanish companies," Investigaciones Economicas, Fundación SEPI, vol. 22(3), pages 517-536, September. [Downloadable!]
  20. Patrick Bolton & Ernst-Ludwig von Thadden, 1998. "Blocks, Liquidity, and Corporate Control," Journal of Finance, American Finance Association, vol. 53(1), pages 1-25, 02. [Downloadable!] (restricted)
    Other versions:
  21. Shleifer, Andrei & Vishny, Robert W, 1986. "Large Shareholders and Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 461-88, June. [Downloadable!] (restricted)
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