Shareholder Protection and Outside Blockholders: Substitutes or Complements?

The Journal of Institutional and Theoretical Economics, Forthcoming

27 Pages Posted: 23 Nov 2012

See all articles by Sergey Stepanov

Sergey Stepanov

National Research University Higher School of Economics - Faculty of Economics; National Research University Higher School of Economics - International College of Economics and Finance

Date Written: August 9, 2012

Abstract

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, hereby calling for a lower 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.

Keywords: shareholder protection, ownership structure, outside blockholders

JEL Classification: G32, K22

Suggested Citation

Stepanov, Sergey, Shareholder Protection and Outside Blockholders: Substitutes or Complements? (August 9, 2012). The Journal of Institutional and Theoretical Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2179648

Sergey Stepanov (Contact Author)

National Research University Higher School of Economics - Faculty of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

National Research University Higher School of Economics - International College of Economics and Finance ( email )

Pokrovski Bulvar 11, Korpus Zh, Office 715
Moscow, 109028
Russia

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