BeschreibungOn the one hand, minority share-holders are subject to a risk of being expropriated by the controller of the firm, i.e. either entrenched management under a dispersed ownership structure or a controlling share-holder under concentrated ownership. On the other hand, economic theory has increasingly begun to recognize the role of employees and other "nonshareholder constituencies" during the past years. While potential shareholders may be reluctant to invest if they are adequately protected against private benefits of control, stakeholders may be deterred from investing if they are subject to the risk of ex post opportunism (e.g. holdup). Our model studies the interaction of these two aspects of corporate governance by looking at the incentives that influence the decision by the controller of the firm (either a controlling shareholder or manager) to divert resources from (other) shareholders and employees. We analyze how these incentives vary between firms depending on the corporate governance structure and the degree of protection granted by the law.
|26 Sept. 2008
|2008 Meetings of the Canadian Law and Economics Association, University of Toronto