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Financial markets industry dynamics and growth

Author

Listed:
  • Maurizio Iacopetta

    (Observatoire français des conjonctures économiques)

  • Raoul Minetti

    (Michigan State University)

  • Pietro F. Peretto

    (Duke University)

Abstract

We study the impact of corporate governance frictions in an economy where growth is driven both by the foundation of new rms and by the in-house investment of incumbent rms. Firms managers engage in tunneling and empire building activities. Active shareholders monitor man- agers, but can shirk on their monitoring, to the detriment of minority (passive) shareholders. The analysis reveals that these conicts among rms stakeholders inhibit the entry of new rms, thereby increasing market concentration. Despite depressing investment returns in the short run, the frictions can however lead incumbents to invest more aggressively in the long run to exploit the concentrated market structure. By means of quantitative analysis, we characterize conditions under which corporate governance reforms boost or reduce welfare.

Suggested Citation

  • Maurizio Iacopetta & Raoul Minetti & Pietro F. Peretto, 2014. "Financial markets industry dynamics and growth," Sciences Po publications info:hdl:2441/1ani1qs24g9, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/1ani1qs24g9in97gbhnanm575u
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    References listed on IDEAS

    as
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    Cited by:

    1. Zakaria Babutsidze & Maurizio Iacopetta, 2016. "Innovation, growth and financial markets," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 1-24, March.

    More about this item

    Keywords

    endogenous growth; Market Structure; Financial Frictions; Corporate governance;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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