Why are there such pronounced differences in patterns of ownership and control of corporations across countries? This paper proposes that these, together with many of the stylized facts of corporate finance, can be explained by private benefits. Private benefits create waste and inefficiency but they can also act as powerful commitment devices that overcome capital market failures. The paper argues that the evolution of institutional arrangements in different countries has been determined by political and regulatory interventions which, in turn, have affected the balance between public and private benefits of control. The paper calls for an evaluation of the relationship between institutional design and corporate activity and for a debate on the public policy choices affecting this design.
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