Agency conflicts, ownership concentration, and legal shareholder protection

Mike Burkart and Fausto Panunzi

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper analyzes the interaction between legal shareholder protection, managerial incentives, monitoring, and ownership concentration. Legal protection affects the expropriation of shareholders and the blockholder's incentives to monitor. Because monitoring weakens managerial incentives, both effects jointly determine the relationship between legal protection and ownership concentration. When legal protection facilitates monitoring better laws strengthen the monitoring incentives, and ownership concentration and legal protection are inversely related. By contrast, when legal protection and monitoring are substitutes better laws weaken the monitoring incentives, and the relationship between legal protection and ownership concentration is non-monotone. This holds irrespective of whether or not the large shareholder can reap private benefits. Moreover, better legal protection may exacerbate rather than alleviate the conflict of interest between large and small shareholders.

Keywords: Monitoring; Ownership structure; Corporate governance; Law and finance (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2006-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

Published in Journal of Financial Intermediation, January, 2006, 15(1), pp. 1-31. ISSN: 1042-9573

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http://eprints.lse.ac.uk/69547/ Open access version. (application/pdf)

Related works:
Journal Article: Agency conflicts, ownership concentration, and legal shareholder protection (2006)
Working Paper: Agency Conflicts, Ownership Concentration, and Legal Shareholder Protection (2001)
Working Paper: Agency conflicts, ownership concentration, and legal shareholder protection (2001)
Working Paper: Agency Conflicts, Ownership Concentration, and Legal Shareholder Protection (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:69547

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