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Ownership Concentration, 'Private Benefits of Control' and Debt Financing

Filatotchev, I; Mickiewicz, T; (2001) Ownership Concentration, 'Private Benefits of Control' and Debt Financing. (Economics Working Papers 4). Centre for the Study of Economic and Social Change in Europe, UCL: London, UK. Green open access

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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.

Type: Working / discussion paper
Title: Ownership Concentration, 'Private Benefits of Control' and Debt Financing
Open access status: An open access version is available from UCL Discovery
DOI: 10.2139/ssrn.286372
Language: English
Additional information: This research forms part of the ACE-Phare project P98-1048-R “Corporate governance, relational investors, strategic restructuring and performance in Hungary and Poland”. Corresponding author: Tomasz Mickiewicz, SSEES, UCL, Senate House, Malet St., London WC1E 7HU, UK
Keywords: Ownership, benefits of control, debt
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > SSEES
URI: http://discovery.ucl.ac.uk/id/eprint/17577
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