joint with Maurizio Iacopetta, OFCE (Sciences-Po) and SKEMA e Pietro F. Peretto, Duke University

We study the impact of corporate governance frictions on growth in an economy where growth is driven both by the foundation of firms that offer new products and by the in-house investment of incumbent firms. Managers can engage in tunnelling and empire building activities at the expense of firms’ shareholders. Firm founders can monitor managers on behalf of all shareholders, but can shirk on their monitoring, damaging minority shareholders. We investigate the effects of these conflicts among firms' stakeholders and financiers on both the entry of new firms and the investment of existing firms. The analysis also characterizes conditions under which the effects of corporate governance frictions on growth boost or reduce welfare.

VIEW PAPER