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Corporate Governance and the Financing of Investment for Structural Change

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  • Hellwig, Martin

    ()
    (Sonderforschungsbereich 504)

Abstract

The paper puts forward the proposition that large corporations should be treated as financial institutions in their own right, as they use available earning from some activities to finance others, including new developments. With this view, it is suggested that the role of the financial system may be seen as channelling funds from activities earning cash to activities needing cash (rather than channelling fund from households to firms). Starting from a critical assessment of the literature on agency costs of internal finance, the paper discusses the pros and cons of having new activities financed within given corporate shells, with significant management autonomy; this is compared to a system where earnings are distributed and - at least partly - reinvested through organized markets. The political economy of decision making within existing corporate shells is identified as a major source of bias in decisions.

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File URL: http://www.sfb504.uni-mannheim.de/publications/dp00-32.pdf
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Bibliographic Info

Paper provided by Sonderforschungsbereich 504, Universit├Ąt Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number 00-32.

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Length: 25 pages
Date of creation: 10 Jul 2000
Date of revision:
Handle: RePEc:xrs:sfbmaa:00-32

Note: I am grateful for helpful comments from Colin Mayer and Georg Rich as well as research support from the Deutsche Forschungsgemeinschaft through Sonderforschungsbereich 504.
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References

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  1. Mark J. Roe, 1997. "The Political Roots Of American Corporate Finance," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 8-22.
  2. Marco Becht & Fabrizio Barca, 2001. "The control of corporate Europe," ULB Institutional Repository 2013/13302, ULB -- Universite Libre de Bruxelles.
  3. Elston, Julie Ann, 1996. "Investment, Liquidity Constraints and Bank Relationships: Evidence from German Manufacturing Firms," CEPR Discussion Papers 1329, C.E.P.R. Discussion Papers.
  4. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  5. Corbett, Jenny & Jenkinson, Tim, 1997. "How Is Investment Financed? A Study of Germany, Japan, the United Kingdom and the United States," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(0), pages 69-93, Supplemen.
  6. Corbett, Jenny & Jenkinson, Tim, 1996. "The Financing of Industry, 1970-1989: An International Comparison," Journal of the Japanese and International Economies, Elsevier, vol. 10(1), pages 71-96, March.
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Cited by:
  1. Franz R. Hahn, 2002. "The Politics of Financial Development. The Case of Austria," WIFO Working Papers 187, WIFO.

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