Shareholder Protection and Outside Blockholders: Substitutes or Complements?

Sergey Stepanov ()

Journal of Institutional and Theoretical Economics (JITE), 2013, vol. 169, issue 2, 355-381

Abstract: Should outside blockholders be more common in countries with weaker shareholder protection? I show that there can be a U-shape dependence of the outside ownership concentration on the quality of shareholder protection. This result is in line with the recent empirical evidence questioning the traditional law-and-finance view. In my model, a lower cost of private benefit extraction makes outside monitoring less desirable for an entrepreneur, thereby calling for a smaller outside blockholder's share. However, a low blockholder's share may provoke collusion between the entrepreneur and the blockholder, which hampers raising funds from dispersed shareholders. This trade-off yields the described U-shape relationship.

JEL-codes: G32 K22 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Shareholder Protection and Outside Blockholders: Substitutes or Complements? (2009)
Working Paper: Shareholder Protection and Outside Blockholders: Substitutes or Complements? (2009)
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DOI: 10.1628/093245613X666315

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