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Shareholder Protection and Outside Blockholders: Substitutes or Complements?

Sergey Stepanov ()

No w0133, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: This paper joins the literature examining connections between legal protection of shareholders and finance. Driven by the need to attract funds a manager tries to reduce agency costs by selling a fraction of equity to a large investor (the outside blockholder). Monitoring by the blockholder can serve as a commitment device limiting inefficient private benefits extraction. However, the threat of collusion between the blockholder and the manager hampers raising funds from dispersed shareholders. We examine how the manager’s choice of the ownership structure is affected by the legal protection of shareholders. Our main finding is that, contrary to the widespread view, there can be a U-shape dependence of the outside ownership concentration on the quality of shareholder protection. At the same time our result on the total ownership concentration is consistent with recent research.

Keywords: Corporate governance; shareholder protection; blockholder monitoring; collusion; ownership structure (search for similar items in EconPapers)
JEL-codes: G32 K22 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-11
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

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Journal Article: Shareholder Protection and Outside Blockholders: Substitutes or Complements? (2013) Downloads
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