Premium
CORPORATE GOVERNANCE AND CAPITAL ACCUMULATION: FIRM‐LEVEL EVIDENCE FROM ITALY
Author(s) -
Rondi Laura,
Elston Julie Ann
Publication year - 2009
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2009.00501.x
Subject(s) - shareholder , insider , corporate governance , monetary economics , equity (law) , business , investor protection , panel data , empirical evidence , economics , finance , econometrics , philosophy , epistemology , political science , law
This study investigates the impact of investor protection on firm ownership and capital growth in a model where investor protection is allowed to vary between firms. Using panel data for Italy, we construct firm‐level variables to capture the degree of investor protection, which is observable to all shareholders. Empirical evidence indicates that the stronger the investor protection the lower the fraction of equity that is owned by insiders. Results show that higher insider equity ownership is linked to larger risk premiums and higher costs of capital. Implications suggest that the magnitude of capital stock distortions is particularly important when shareholder protection is weak and ownership concentration is high.