The Trade-Off between Risk and Control in Corporate Ownership

This paper analyses the risk-control trade-off in corporate ownership. It presents a simple model in which large shareholders decide their share depending on their risk aversion, risk-neutral effects attached to firm size, and the effectiveness of different (external and internal) mechanisms for con...

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Bibliographic Details
Published in:Journal of institutional and theoretical economics 2004-06, Vol.160 (2), p.252-274
Main Author: Manjon, Miguel C
Format: Article
Language:English
Subjects:
Business ownership
Business risks
Business structures
Corporate governance
Corporate structure
Corporations
Economic models
Economic theory
Economics
Empirical evidence
Enterprises
Investment risk
Market mechanisms
Ownership
Risk
Risk aversion
Shareholders
Spain
Stockholders
Studies
Trade-off
U.S.A
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Summary:This paper analyses the risk-control trade-off in corporate ownership. It presents a simple model in which large shareholders decide their share depending on their risk aversion, risk-neutral effects attached to firm size, and the effectiveness of different (external and internal) mechanisms for controlling managers' behaviour. Two institutional settings in which the expected benefits from control appear to overcome risk aspects are explored: the U.S. at the turn of the twentieth century and Spain in the 1990s. The empirical evidence seems to support the predictions of the model regarding the relationship between ownership concentration, the characteristics of governance, and the size of the firm.
ISSN:0932-4569
1614-0559
DOI:10.1628/0932456041438849