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Ownership, Economic Entrenchment and Allocation of Capital

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Author Info
Eklund, Johan () (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
Desai, Sameeksha () (University of Missouri and Max Planck Institute of Economics)

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Abstract

In an efficient economy, capital should be quickly (re)allocated from declining firms and sectors to more profitable investment opportunities. This process is affected by the concentration of corporate control, which in turn is affected by market institutions. We employ a panel of 12,000 firms across 44 countries to estimate the functional efficiency of capital markets. We adapt a measure for the efficiency of capital allocation using the accelerator principle. Our empirical results show weak property rights and highly concentrated ownership reduce the functional efficiency of capital markets. Findings support the economic entrenchment hypothesis but not the legal origins hypothesis.

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Publisher Info
Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 123.

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Length: 38 pages
Date of creation: 02 Apr 2008
Date of revision:
Handle: RePEc:hhs:cesisp:0123

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
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Related research
Keywords: Allocation of capital; accelerator principle; ownership; functional efficiency; economic entrenchment;

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Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
P00 - Economic Systems - - General - - - General

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