The John M. Olin Center

Paper Abstract

Untitled Document

29. Giulio Ecchia, Martin Gelter & Piero Pasotti, Corporate Governance, Corporate and Employment Law, and the Costs of Expropriation, 5/2009.

Abstract: We set up a model to study how ownership structure, corporate law and employment law interact to set the incentives that infuence 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 somethimes be substitutes; employees may benefit from better corporate law inteded 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.