Ownership concentration:'Private benefits of control' and debt financing

Filatotchev, Igor and Mickiewicz, Tomasz (2001). Ownership concentration:'Private benefits of control' and debt financing. Working Paper. University College London.

Abstract

Building on the ‘law and economics’ literature, this paper analyses corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante ‘private benefits of control’. Ownership concentration may result in lower efficiency, measured as a ratio of a firm’s debt to investment, and this effect depends on the identity of the largest shareholder. Moreover, entrenched dominant shareholder(s) may be colluding with fixed-claim holders in extracting ‘control premium’. One of possible outcomes is a ‘crowding out’ of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.

Divisions: Aston Business School > Economics finance & entrepreneurship
Uncontrolled Keywords: ownership,benefits of control,debt
Published Date: 2001-12
Authors: Filatotchev, Igor
Mickiewicz, Tomasz ( 0000-0001-5261-5662)

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