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Ownership Concentration, ‘Private Benefits of Control' and Debt Financing

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Author Info

  • Igor Filatotchev

    ()
    (School of Management and Organisational Psychology, Birkbeck College)

  • Tomasz Mickiewicz

    ()

Abstract

Building on the ‘law and economics’ literature, this paper analyses corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante ‘private benefits of control’. Ownership concentration may result in lower efficiency, measured as a ratio of a firm’s debt to investment, and this effect depends on the identity of the largest shareholder. Moreover, entrenched dominant shareholder(s) may be colluding with fixed-claim holders in extracting ‘control premium’. One of possible outcomes is a ‘crowding out’ of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.

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File URL: http://www.ssees.ucl.ac.uk/publications/working_papers/wp4.pdf
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Bibliographic Info

Paper provided by CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL) in its series Working Papers with number 4.

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Length: 33 pages
Date of creation: Dec 2001
Date of revision:
Handle: RePEc:see:wpaper:4

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Related research

Keywords: ownership; benefits of control; debt JEL Classification: G21; G28; G32; G34;

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Cited by:
  1. World Bank, 2009. "Good Governance in Public-Private Partnerships : A Resource Guide for Practitioners," World Bank Other Operational Studies 12665, The World Bank.
  2. Andrew Ellul & Levent Guntay & Ugur Lel, 2007. "External governance and debt agency costs of family firms," International Finance Discussion Papers 908, Board of Governors of the Federal Reserve System (U.S.).
  3. Yu Honghai & Xu Longbing & Chen Baizhu, 2011. "Ultimate ownership, institutions and listed companies' debt financing: Based on the perspective of controlling shareholders," China Finance Review International, Emerald Group Publishing, vol. 1(4), pages 316-333, August.
  4. Tomasz Mickiewicz & Natalia Isachenkova, 2003. "Ownership Characteristics and Access to Finance: Evidence from a Survey of Large Privatised Companies in Hungary and Poland," Working Papers 35 Key words: financial c, CENTRE FOR THE STUDY OF ECONOMIC AND SOCIAL CHANGE IN EUROPE,School of Slavonic and East European Studies,University College London (SSEES,UCL).
  5. Mico Apostolov, 2013. "Governance and enterprise restructuring in Southeast Europe," International Journal of Social Economics, Emerald Group Publishing, vol. 40(8), pages 680-691, June.
  6. Jian Chen & Roger Strange, 2005. "The Determinants of Capital Structure: Evidence from Chinese Listed Companies," Economic Change and Restructuring, Springer, vol. 38(1), pages 11-35, 03.

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