Complementarities in Corporate Governance: Ownership Concentration, Capital Structure, Monitoring, and Pecuniary Incentives

Kiel Working Paper No. 968

32 Pages Posted: 9 May 2000

See all articles by Ralph P. Heinrich

Ralph P. Heinrich

UN Economic Commission for Europe - Economic Analysis Division

Date Written: March 2000

Abstract

The paper shows that, as owners accumulate larger stakes and hence become less risk-tolerant, their incentives to monitor management are attenuated because monitoring shifts some of the firm?s risk from management to owners. This counterbalances the positive effect which more concentrated ownership has on monitoring via reduced free rider problems. Moreover, the paper shows how the opportunity cost of concentrated ownership, which is the loss of risk-sharing benefits, creates scope to use leverage as an additional complementary governance instrument. The paper offers new explanations for several empirical regularities found in the literature.

JEL Classification: G32, G34, J33

Suggested Citation

Heinrich, Ralph P., Complementarities in Corporate Governance: Ownership Concentration, Capital Structure, Monitoring, and Pecuniary Incentives (March 2000). Kiel Working Paper No. 968. Available at SSRN: https://ssrn.com/abstract=216389 or http://dx.doi.org/10.2139/ssrn.216389

Ralph P. Heinrich (Contact Author)

UN Economic Commission for Europe - Economic Analysis Division ( email )

Room 441
Palais des Nations
1211 Geneva 10
Switzerland
0041 22 917 1269 (Phone)

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