Corporate Governance, Corporate and Employment Law, and the Costs of Expropriation
Harvard Olin Fellows' Discussion Paper No. 29, 5/2009
ECGI - Law Working Paper No. 128/2009
Review of Law and Economics, vol. 8, iss.2, 2012
29 Pages Posted: 12 Aug 2009 Last revised: 3 Oct 2019
Date Written: July 6, 2009
Abstract
We set up a model to study how ownership structure, corporate law and employment law interact to set the incentives that influence the decision by the large shareholder or manager effectively controlling the firm to divert resources from minority shareholders and employees. We suggest that agency problems between the controller and other investors and holdup problems between shareholders and employees are connected if the controller bears private costs of 'expropriating' these groups. Corporate law and employment law may therefore sometimes be substitutes; employees may benefit from better corporate law intended to protect minority shareholder, and vice versa. Our model has implications for the domestic and comparative study of corporate governance structure and addresses, among other things, the question whether large shareholders are better able to 'bond' with employees than dispersed ones, or whether the separation of ownership facilitates long-term relationships with labor.
Keywords: corporate governance, ownership structure, corporate law, employment law, minority shareholders, holdup problem, stakeholders, labor
JEL Classification: G30, K22
Suggested Citation: Suggested Citation
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