The Political Economy of Bank and Equity Dominance

Ernst-Ludwig von Thadden and Enrico Perotti

No 3914, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Legislation affects corporate governance and the return to human and financial capital. We allow the preference of a political majority to determine both the governance structure and the extent of labour rents. In a society where median voters have relatively more at stake in the form of human capital rather than financial wealth, they prefer a less risky environment even when this reduces profits, as labour rents are exposed to undiversifiable firm-specific risk. In general, labour and lenders prefer less corporate risk, since their claims are a concave function of firm profitability. This congruence of interests can lead the political majority to support bank over equity dominance. As share-holdings by the median voters increase, the dominance structure will move towards favoring equity markets with riskier corporate strategies and higher profits.

Keywords: Corporate governance; Bank centered system; Social insurance; Political economy; Median voter; Corporate investment (search for similar items in EconPapers)
JEL-codes: G28 G31 G32 G34 (search for similar items in EconPapers)
Date: 2003-05
New Economics Papers: this item is included in nep-cfn and nep-pol
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://cepr.org/publications/DP3914 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:3914

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3914

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().