Template-Type: ReDIF-Paper 1.0
Author-Name: Angelo Baglioni
Author-X-Name-First: Angelo 
Author-X-Name-Last: Baglioni
Author-Email: angelo.baglioni@unicatt.it
Author-Workplace-Name: DISCE, Università Cattolica

Title: Corporate Governance as a Commitmente and Signalling Device 
Abstract: A model is presented, where firms issuing equity differ in the
ability of their controlling shareholders to extract private benefits: this creates
a lemon problem, leading to cross-subsidization across issuers. A governance
institution is introduced, enabling large shareholders to (imperfectly)
commit to the general interest of shareholders. The following main results
are obtained. I) Controlling shareholders willing to apply such an institution
are those with a level of private benefits either very low or very high: the
former employ the institutional constraint as a signalling device, the latter
as a commitment device. Those with an intermediate level of private benefits
are not interested. II) A higher ownership concentration reduces the large
shareholder’s incentive to commit. III) Self-regulation dominates regulation.
Length: nn pages 20
Creation-Date: 2007-06

File-URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0075.pdf
File-Format: Application/pdf
File-Function: First version, 2007
Number: ief0075
Classification-JEL: G34, G38
Keywords: large shareholders, private benefits, (self-)regulation
Handle: RePEc:ctc:serie3:ief0075