The Political Economy of Bank- and Market Dominance

Arbeitspapier

Legislation affects corporate governance and the return to human and financial capital. We allow the preference of a political majority to determine both the governance structure and the extent of labor rents. In a society where median voters have relatively more at stake in the form of human capital rather than financial wealth, they prefer a less risky environment even when this reduces profits, as labor rents are exposed to undiversifiable firm-specific risk. In general, labor and lenders prefer less corporate risk, since their claims are a concave function of firm profitability. This congruence of interests can lead the political majority to support bank over equity dominance. As shareholdings by the median voters increase, the dominance structure will move towards favoring equity markets with riskier corporate strategies and higher profits.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 04-012/2

Classification and Topics

• Classification: Wirtschaft ; Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance ; Capitalist Systems: Political Economy
• Subject: corporate governance ; corporate finance ; political economy ; labor income ; human capital ; median voter ; Corporate Governance ; Finanzintermediation ; Bank ; Medianwähler-Modell ; Ökonomische Theorie der Demokratie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Perotti, Enrico ; von Thadden, Ernst Ludwig
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/86181
• Last update: 10.03.2025, 11:42 AM CET