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Corporate Governance and the Financing of Investment for Structural Change

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  • Hellwig, Martin

    (Sonderforschungsbereich 504)

Abstract

The paper puts forward the proposition that large corporations should be treated as financial institutions in their own right, as they use available earning from some activities to finance others, including new developments. With this view, it is suggested that the role of the financial system may be seen as channelling funds from activities earning cash to activities needing cash (rather than channelling fund from households to firms). Starting from a critical assessment of the literature on agency costs of internal finance, the paper discusses the pros and cons of having new activities financed within given corporate shells, with significant management autonomy; this is compared to a system where earnings are distributed and - at least partly - reinvested through organized markets. The political economy of decision making within existing corporate shells is identified as a major source of bias in decisions.

Suggested Citation

  • Hellwig, Martin, 2000. "Corporate Governance and the Financing of Investment for Structural Change," Sonderforschungsbereich 504 Publications 00-32, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:00-32
    Note: I am grateful for helpful comments from Colin Mayer and Georg Rich as well as research support from the Deutsche Forschungsgemeinschaft through Sonderforschungsbereich 504.
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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp00-32.pdf
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    References listed on IDEAS

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    2. Franz R. Hahn, 2002. "The Politics of Financial Development. The Case of Austria," WIFO Working Papers 187, WIFO.

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