Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319975 
Year of Publication: 
2014
Series/Report no.: 
CASMEF Working Paper Series No. WP 2014/09
Publisher: 
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract: 
We study the impact of corporate governance frictions in an economy where growth is driven both by the foundation of new firms and by the in-house investment of incumbent firms. Firms' managers engage in tunneling and empire building activities. Active shareholders monitor managers, but can shirk on their monitoring, to the detriment of minority (passive) shareholders. The analysis reveals that these conflicts among firms' stakeholders inhibit the entry of new firms, thereby increasing market concentration. Despite depressing investment returns in the short run, the frictions can however lead incumbents to invest more aggressively in the long run to exploit the concentrated market structure. By means of quantitative analysis, we characterize conditions under which corporate governance reforms boost or reduce welfare.
Subjects: 
Endogenous Growth
Market Structure
Financial Frictions
Corporate Governance
JEL: 
E44
O40
G30
Document Type: 
Working Paper

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