Shareholder Protection and Outside Blockholders: Substitutes or Complements?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) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cfr:cefirw:w0133 Access Statistics for this paper More papers in Working Papers from Center for Economic and Financial Research (CEFIR) Contact information at EDIRC. |
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