Shareholder Protection and Outside Blockholders: Substitutes or Complements? - 10.1628/093245613X666315 - Mohr Siebeck
Economics

Sergey Stepanov

Shareholder Protection and Outside Blockholders: Substitutes or Complements?

Volume 169 () / Issue 2, pp. 355-381 (27)

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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.
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Sergey Stepanov No current data available.