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Agency conflicts, ownership concentration, and legal shareholder protection

Burkart, Mike ORCID: 0000-0002-0954-4499 and Panunzi, Fausto (2006) Agency conflicts, ownership concentration, and legal shareholder protection. Journal of Financial Intermediation, 15 (1). pp. 1-31. ISSN 1042-9573

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Identification Number: 10.1016/j.jfi.2004.12.004


This paper analyzes the interaction between legal shareholder protection, managerial incentives, monitoring, and ownership concentration. Legal 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 facilitates monitoring better laws strengthen the monitoring incentives, and ownership concentration and legal protection are inversely related. By contrast, 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. This holds irrespective of whether or not the large shareholder can reap private benefits. Moreover, better legal protection may exacerbate rather than alleviate the conflict of interest between large and small shareholders.

Item Type: Article
Official URL:
Additional Information: © 2005 Elsevier Inc.
Divisions: Finance
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Date Deposited: 22 Feb 2017 10:24
Last Modified: 22 Jul 2024 03:03

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