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Corporate Governance, Corporate and Employment Law, and the Costs of Expropriation

29 Pages Posted: 12 Aug 2009 Last revised: 8 Oct 2009

Giulio Ecchia

University of Bologna - Department of Economics

Martin Gelter

Fordham University School of Law; European Corporate Governance Institute (ECGI)

Piero Pasotti

University of Bologna - Department of Economics

Date Written: July 6, 2009

Abstract

We set up a model to study how ownership structure, corporate law and employment law interact to set the incentives that influence the decision by the large shareholder or manager effectively controlling the firm to divert resources from minority shareholders and employees. We suggest that agency problems between the controller and other investors and holdup problems between shareholders and employees are connected if the controller bears private costs of 'expropriating' these groups. Corporate law and employment law may therefore sometimes be substitutes; employees may benefit from better corporate law intended to protect minority shareholder, and vice versa. Our model has implications for the domestic and comparative study of corporate governance structure and addresses, among other things, the question whether large shareholders are better able to 'bond' with employees than dispersed ones, or whether the separation of ownership facilitates long-term relationships with labor.

Keywords: corporate governance, ownership structure, corporate law, employment law, minority shareholders, holdup problem, stakeholders, labor

JEL Classification: G30, K22

Suggested Citation

Ecchia, Giulio and Gelter, Martin and Pasotti, Piero, Corporate Governance, Corporate and Employment Law, and the Costs of Expropriation (July 6, 2009). Harvard Olin Fellows' Discussion Paper No. 29, 5/2009; ECGI - Law Working Paper No. 128/2009; Fordham Law Legal Studies Research Paper No. 1430623. Available at SSRN: https://ssrn.com/abstract=1430623 or http://dx.doi.org/10.2139/ssrn.1430623

Giulio Ecchia

University of Bologna - Department of Economics ( email )

Via Saragozza, 8
Bologna, 40125
Italy

Martin Gelter (Contact Author)

Fordham University School of Law ( email )

150 West 62nd Street
New York, NY 10023
United States
646-312-8752 (Phone)

HOME PAGE: http://www.fordham.edu/info/23135/martin_gelter

European Corporate Governance Institute (ECGI)

Brussels, B-1050
Belgium

HOME PAGE: http://www.ecgi.org/members_directory/member.php?member_id=621

Piero Pasotti

University of Bologna - Department of Economics ( email )

Piazza Scaravilli, 2
Bologna, Bo 40126
Italy

HOME PAGE: http://sites.google.com/site/pieropasottiswebpage/

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