The Political Economy of Corporate Control and Labor Rents

34 Pages Posted: 23 Nov 2005

See all articles by Enrico C. Perotti

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Ernst-Ludwig von Thadden

Universitaet Mannheim; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Abstract

In a democracy, a political majority can influence both the corporate governance structure and the return to human and financial capital. We argue that when financial wealth is sufficiently concentrated, there is political support for high labor rents and a strong governance role for banks or large investors. The model is consistent with the "great reversal" phenomenon in the first half of the twentieth century. We offer evidence that in several financially developed countries a financially weakened middle class became concerned about labor income risk associated with free markets and supported a more corporatist financial system. We offer suggestive evidence using post WW1 inflationary shocks as the source of identifying exogenous variation.

Keywords: corporate governance, political economy, bank control, family firms, great reversals, labor rents

JEL Classification: G28, G312, G32, G34

Suggested Citation

Perotti, Enrico C. and von Thadden, Ernst-Ludwig, The Political Economy of Corporate Control and Labor Rents. Journal of Political Economy, Vol. 114, No. 1, pp. 145-174, February 2006, Available at SSRN: https://ssrn.com/abstract=848404

Enrico C. Perotti

University of Amsterdam - Finance Group ( email )

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Amsterdam, 1018 TV
Netherlands
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ernst-Ludwig Von Thadden (Contact Author)

Universitaet Mannheim ( email )

Department of Economics
Mannheim, 68131
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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