Research Repository

Large shareholders and corporate governance

Frantz, P and Instefjord, N (2009) 'Large shareholders and corporate governance.' Economics of Governance, 10 (4). 297 - 321. ISSN 1435-6104

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Abstract

The paper looks at the voluntary provision of governance to outside shareholders by an entrepreneur who takes his firm public but remains a large shareholder after the IPO. We find that the entrepreneur always puts in place an independent board which acts in the interests of the outside shareholders, but may put in place a friendly remuneration committee that ensures that CEO pay is structured to suit the entrepreneur in the cases where the retained equity stake is sufficiently large. When comparing this provision of governance to the provision preferred by a welfare maximizing regulator, we find that both voluntary overprovision and underprovision of governance can happen. Overprovision of governance happens in the cases where the entrepreneur commits to independence at the level of the remuneration committee when the regulator prefer a friendly remuneration committee. Underprovision of governance takes the form of establishing a friendly remuneration committee (with an independent board), when the regulator would prefer an independent remuneration committee (with a friendly board). We discuss the empirical predictions of the model. © Springer-Verlag 2009.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jim Jamieson
Date Deposited: 18 Dec 2012 14:10
Last Modified: 23 Jan 2019 01:15
URI: http://repository.essex.ac.uk/id/eprint/4778

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