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Corporate Governance as a Commitmente and Signalling Device

  • Angelo Baglioni

    ()

    (DISCE, Università Cattolica)

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.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0075.pdf
File Function: First version, 2007
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Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0075.

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Length: nn pages 20
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:ctc:serie3:ief0075
Contact details of provider: Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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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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