Ownership Concentration, Private Benefits of Control and Debt Financing

Topics:
Commercial Banking
Tags:
Benefit,
Investment,
Financing,
Financial Accounting,
Finance,
Debt,
Corporate Law,
Corporate Governance,
Business Operations,
University College London
Source:
University College London

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Overview: 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.

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Format: PDF | Size: 218KB | Date: Dec 2001 | Pages: 33

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