Financial Markets, Industry Dynamics, and Growth

55 Pages Posted: 28 Aug 2014

See all articles by Maurizio Iacopetta

Maurizio Iacopetta

OFCE (Centre de recherche en Economie de Sciences Po); SKEMA Business School - Sophia Antipolis Campus

Raoul Minetti

Michigan State University - Department of Economics

Pietro F. Peretto

Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Date Written: August 27, 2014

Abstract

We study the impact of corporate governance frictions in an economy where growth is driven both by the foundation of new firms and by the in-house investment of incumbent firms. Firms' managers engage in tunneling and empire building activities. Active shareholders monitor managers, but can shirk on their monitoring, to the detriment of minority (passive) shareholders. The analysis reveals that these conflicts among firms' stakeholders inhibit the entry of new firms, thereby increasing market concentration. Despite depressing investment returns in the short run, the frictions can however lead incumbents to invest more aggressively in the long run to exploit the concentrated market structure. By means of quantitative analysis, we characterize conditions under which corporate governance reforms boost or reduce welfare.

Keywords: Endogenous Growth, Market Structure, Financial Frictions, Corporate Governance

JEL Classification: E44, O40, G30

Suggested Citation

Iacopetta, Maurizio and Minetti, Raoul and Peretto, Pietro F., Financial Markets, Industry Dynamics, and Growth (August 27, 2014). Economic Research Initiatives at Duke (ERID) Working Paper No. 172, Available at SSRN: https://ssrn.com/abstract=2488039 or http://dx.doi.org/10.2139/ssrn.2488039

Maurizio Iacopetta

OFCE (Centre de recherche en Economie de Sciences Po)

31 rue Croix des Petits Champs
75049 Paris Cedex 01
France

SKEMA Business School - Sophia Antipolis Campus ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Raoul Minetti

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

Pietro F. Peretto (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1807 (Phone)
919-684-8974 (Fax)

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
106
Abstract Views
1,324
rank
313,117
PlumX Metrics