The paper analyzes the interaction between legal shareholder protection, managerial incentives, monitoring and ownership concentration. Legal shareholder protection affects the expropriation of shareholders and the blockholder's incentives to monitor. Because monitoring weakens managerial incentives, both effects jointly determine the relationship between legal protection and ownership concentration. When legal protection and monitoring are substitutes better laws weaken the monitoring incentives and the relationship between legal protection and ownership concentration is non-monotone.
Agency conflicts, ownership concentration, and legal shareholder protection
PANUNZI, FAUSTO
2006
Abstract
The paper analyzes the interaction between legal shareholder protection, managerial incentives, monitoring and ownership concentration. Legal shareholder protection affects the expropriation of shareholders and the blockholder's incentives to monitor. Because monitoring weakens managerial incentives, both effects jointly determine the relationship between legal protection and ownership concentration. When legal protection and monitoring are substitutes better laws weaken the monitoring incentives and the relationship between legal protection and ownership concentration is non-monotone.
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