Ownership Concentration, 'Private Benefits of Control' and Debt Financing

Preprint
Publisher Website
Google Scholar
  • 1 January 2001
    • preprint
      • Published in RePEc
Abstract
Building on the 'law and economics' literature, this paper analyses corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante 'private benefits of control'. Ownership concentration may result in lower efficiency, measured as a ratio of a firm's debt to investment, and this effect depends on the identity of the largest shareholder. Moreover, entrenched dominant shareholder(s) may be colluding with fixed-claim holders in extracting 'control premium'. One of possible outcomes is a 'crowding out' of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.
All Related Versions

This publication has 0 references indexed in Scilit: