Corporate Financing, Corporate Wealth Concentration, and Income Inequality
24 Pages Posted: 1 Dec 2019
Date Written: November 15, 2019
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: Suggested Citation