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Oligarchic Capitalism and Financial Development

  • Andrei Malenko
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    In most countries, large corporations are controlled by a few very wealthy individuals or families. However, whether a large concentration of control over major assets leads to poor financial development remains an open question. In this article, we present a political economy model of financial development in countries characterized by a pattern of oligarchic capitalism. We consider an entrepreneur's decision to go public in such an environment, an oligarch's decision to make additional investments and to lobby, and the market equilibrium. The model predicts that a large concentration of control over major corporations might be conducive to weak investor protection, resulting in the low capitalization of firms, few initial public offerings, and low dividends paid by a typical firm. It also sheds light on capital structure decisions made by firms in oligarchic countries. We illustrate the model using examples from several countries.

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    Article provided by M.E. Sharpe, Inc. in its journal Problems of Economic Transition.

    Volume (Year): 49 (2006)
    Issue (Month): 7 (November)
    Pages: 70-107

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    Handle: RePEc:mes:prectr:v:49:y:2006:i:7:p:70-107
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