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Corporate Governance as a Commitmente and Signalling Device

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  • Angelo Baglioni

    () (DISCE, Università Cattolica)

Abstract

A model is presented, where firms issuing equity differ in the ability of their controlling shareholders to extract private benefits: this creates a lemon problem, leading to cross-subsidization across issuers. A governance institution is introduced, enabling large shareholders to (imperfectly) commit to the general interest of shareholders. The following main results are obtained. I) Controlling shareholders willing to apply such an institution are those with a level of private benefits either very low or very high: the former employ the institutional constraint as a signalling device, the latter as a commitment device. Those with an intermediate level of private benefits are not interested. II) A higher ownership concentration reduces the large shareholder’s incentive to commit. III) Self-regulation dominates regulation.

Suggested Citation

  • Angelo Baglioni, 2007. "Corporate Governance as a Commitmente and Signalling Device," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0075, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  • Handle: RePEc:ctc:serie3:ief0075
    as

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    File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0075.pdf
    File Function: First version, 2007
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    References listed on IDEAS

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    1. Paolo, Santella & Carlo, Drago & Giulia, Paone, 2007. "Who cares about Director Independence?," MPRA Paper 2288, University Library of Munich, Germany.
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    Cited by:

    1. Sandro Brusco & Luca Colombo & Umberto Galmarini, 2010. "Local Governments Tax Autonomy, Lobbying, and Welfare," Department of Economics Working Papers 10-01, Stony Brook University, Department of Economics.
    2. Maria Flavia Ambrosanio & Massimo Bordignon & Floriana Cerniglia, 2010. "Constitutional Reforms, Fiscal Decentralization and Regional Fiscal Flows in Italy," Chapters,in: The Political Economy of Inter-Regional Fiscal Flows, chapter 4 Edward Elgar Publishing.
    3. Stefano Colombo, 2008. "Discriminatory prices, endogenous locations and the Prisoner Dilemma problem," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0079, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    4. Baglioni, Angelo & Monticini, Andrea, 2010. "The intraday interest rate under a liquidity crisis: The case of August 2007," Economics Letters, Elsevier, vol. 107(2), pages 198-200, May.
    5. Giuseppe Mastromatteo, 2011. "H.P. Minsky And Policies To Countervail Crises," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0102, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    6. Giuseppe Mastromatteo, 2011. "The Debate on the Crisis: Recent Reappraisals of the Concept of Functional Finance," DISCE - Quaderni dell'Istituto di Economia e Finanza ief0105, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

    More about this item

    Keywords

    large shareholders; private benefits; (self-)regulation;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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