Ownership Concentration, 'Private Benefits of Control' and Debt Financing
Preprint
- 1 January 2001
- preprint
- Published by Elsevier in SSRN Electronic Journal
Abstract
Building on the fast-growing "law and economics" literature this paper analyzes corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante "private benefits of control" at the expense of minority shareholders. It demonstrates that ownership concentration is associated with a less efficient use of financial resources measured as a ratio of a firm's debt to investment, and that this does not depend on the identity of the largest shareholder. Entrenched dominant shareholders may be colluding with fixed-claim holders in extracting "control premium." One of possible outcomes of this collusion is a "crowding out" of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.Keywords
All Related Versions
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