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Agency Conflicts, Ownership Concentration, and Legal Shareholder Protection

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Author Info
Fausto Panunzi
Mike Burkart ()

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Abstract

This paper analyses the interaction between legal shareholder protection, managerial incentives, and outside ownership concentration. Legal protection affects both the expropriation of shareholders and the blockholders incentives to monitor. Because of this latter effect and its repercussion on managerial incentives, outside ownership concentration and legal shareholder protection can be both substitutes or complements. This holds irrespective of whether or not the large shareholder can reap private benefits. Moreover, better legal protection may exacerbate rather than alleviate the conflict of interest between large and small shareholders. In the extended framework with monetary incentives, ownership is fully dispersed when legal shareholder protection is strong. Otherwise, outside block ownership is optimal and is a substitute to legal protection when the law is of intermediate quality, while it is a complement when the law is poor.

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Paper provided by Financial Markets Group in its series FMG Discussion Papers with number dp378.

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Date of creation: May 2001
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Handle: RePEc:fmg:fmgdps:dp378

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Sanford J. Grossman & Oliver D. Hart, 1980. "Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 42-64, Spring. [Downloadable!] (restricted)
  2. Marco Pagano & Ailsa Röell, 1998. "The Choice Of Stock Ownership Structure: Agency Costs, Monitoring, And The Decision To Go Public," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 187-225, February. [Downloadable!] (restricted)
  3. Mike Burkart & Denis Gromb & Fausto Panunzi, 1998. "Why Higher Takeover Premia Protect Minority Shareholders," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 172-204, February. [Downloadable!] (restricted)
  4. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
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  5. Arnoud W.A. Boot & Jonathan R. Macey, 1999. "Objectivity, Proximity and Adaptability in Corporate Governance," William Davidson Institute Working Papers Series 266, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
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  6. Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 317-346, January. [Downloadable!] (restricted)
  7. Zingales, Luigi, 1995. "Insider Ownership and the Decision to Go Public," Review of Economic Studies, Blackwell Publishing, vol. 62(3), pages 425-48, July. [Downloadable!] (restricted)
  8. Beetsma, Roel & Peters, Hans & Rebers, Eugene, 2000. "When to fire bad managers: the role of collusion between management and board of directors," Journal of Economic Behavior & Organization, Elsevier, vol. 42(4), pages 427-444, August. [Downloadable!] (restricted)
  9. Sanford J. Grossman & Oliver D. Hart, 1987. "One Share/One Vote and The Market for Corporate Control," Working papers 440, Massachusetts Institute of Technology (MIT), Department of Economics.
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  10. 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.
  11. 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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  12. Andrei Shleifer & Daniel Wolfenson, 2000. "Investor Protection and Equity Markets," NBER Working Papers 7974, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  14. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," CID Working Papers 49, Center for International Development at Harvard University. [Downloadable!]
  15. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  16. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July. [Downloadable!] (restricted)
  17. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 2000. "Agency Problems and Dividend Policies around the World," Journal of Finance, American Finance Association, vol. 55(1), pages 1-33, 02. [Downloadable!] (restricted)
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  18. 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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  19. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giannetti, Mariassunta, 2001. "Risk sharing and firm size: theory and international evidence," Working Paper Series in Economics and Finance 0472, Stockholm School of Economics, revised 06 Nov 2001. [Downloadable!]
  2. Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2005. "What Role of Legal Systems in Financial Intermediation? Theory and Evidence," Working Papers 283, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
  3. Sergey Stepanov, 2007. "Shareholder Access to Manager-Biased Courts and the Monitoring/Litigation Tradeoff," Working Papers w0106, Center for Economic and Financial Research (CEFIR). [Downloadable!]
  4. Heitor Almeida & Daniel Wolfenzon, 2005. "A Theory of Pyramidal Ownership and Family Business Groups," NBER Working Papers 11368, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Bottazzi, L. & Da Rin, M. & Hellmann, T., 2008. "What is the Role of Legal Systems in Financial Intermediation? Theory and Evidence," Discussion Paper 2008-014, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  6. Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2002. "Family Firms," Harvard Institute of Economic Research Working Papers 1944, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
    • Andrei Shleifer & Fausto Panunzi & Mike Burkart, 2002. "Family Firms," FMG Discussion Papers dp406, Financial Markets Group. [Downloadable!] (restricted)
    • Burkart, Mike & Panunzi, Fausto & Shleifer, Andrei, 2002. "Family Firms," CEPR Discussion Papers 3234, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2002. "Family Firms," NBER Working Papers 8776, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    • Mike Burkart & Fausto Panunzi & Andrei Shleifer, 2003. "Family Firms," Journal of Finance, American Finance Association, vol. 58(5), pages 2167-2202, October. [Downloadable!] (restricted)
  7. Castillo, Ramon & Skaperdas, Stergios, 2003. "All in the Family or Public? Law and Appropriative Costs as Determinants of Ownership Structure," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  8. Alexandra Lai & Raphael Solomon, 2006. "Ownership Concentration and Competition in Banking Markets," Working Papers 06-7, Bank of Canada. [Downloadable!]
  9. Morales, Marco, 2009. "Determinants of Ownership Concentration and Tender Offer Law in the Chilean Stock Market," Serie de Documentos de Trabajo 1, Superintendencia de Valores y Seguros, División de Estudios y Desarrollo de Mercados. [Downloadable!]
  10. Nenova, Tatiana, 2006. "Takeover laws and financial development," Policy Research Working Paper Series 4029, The World Bank. [Downloadable!]
  11. Malika HAMADI, 2002. "Ownership Strucure ad the Performance of Belgian Listed Firms," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2002015, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
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