Ownership Concentration, ‘Private Benefits of Control' and Debt Financing
AbstractBuilding 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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Bibliographic InfoPaper 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.
Length: 33 pages
Date of creation: Dec 2001
Date of revision:
ownership; benefits of control; debt JEL Classification: G21; G28; G32; G34;
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- deb - - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
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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).
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