Corporate Financing, Corporate Wealth Concentration, and Income Inequality

24 Pages Posted: 1 Dec 2019

See all articles by Haris Khan

Haris Khan

SDSB, Lahore University Of Maangement Sciences

Choudhry Tanveer Shehzad

SDSB, Lahore University of Managment Sciences

Date Written: November 15, 2019

Abstract

Complementing a political motivation proposed by Stiglitz (2012), we identify the self-perpetuating nature of income inequality motivated in neoclassical corporate finance, corporate financing in the pecking order, by a significant positive impact of macro-level income inequality on wealth inequality. Our empirical analysis corroborates the same; for 15,812 firms, operating in 41 developed and developing countries, we find evidence of a significant positive impact of national income inequality on firm ownership concentration. We employ panel ordered logit estimations and show evidence of the effect observable after controlling for other firm-, industry-, and country-level factors, identified in literature to impact firm ownership concentration, as well as robust to their potential endogeneity to the extent of employing temporally preceding observations. The effect is also robust against residual heteroskedasticity, alternative measures of income inequality and firm size, sample restrictions to high income and OECD member economies, and accounting for the three-level hierarchical arrangement of firms operating in industries which have a unique operational presence in a country. This is a contribution also to the literature on firm ownership concentration by identifying a new determinant of the same with theoretical motivation and empirical validation.

Keywords: Distribution of income, Capital concentration, Income inequality, Financial institutions, Financial intermediation, Firm ownership concentration, corporate finance, Wealth inequality

JEL Classification: D63, G18, O11, O15

Suggested Citation

Khan, Haris and Shehzad, Choudhry Tanveer, Corporate Financing, Corporate Wealth Concentration, and Income Inequality (November 15, 2019). Available at SSRN: https://ssrn.com/abstract=3488010

Haris Khan (Contact Author)

SDSB, Lahore University Of Maangement Sciences ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

HOME PAGE: http://sdsb.lums.edu.pk/content/haris-khan

Choudhry Tanveer Shehzad

SDSB, Lahore University of Managment Sciences ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

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