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Financial Markets, Industry Dynamics, and Growth

Publication ,  Journal Article
Iacopetta, M; Minetti, R; Peretto, PF
Published in: Economic Research Initiatives at Duke (ERID)
August 27, 2014

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.

Duke Scholars

Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

August 27, 2014

Issue

172
 

Citation

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Iacopetta, M., Minetti, R., & Peretto, P. F. (2014). Financial Markets, Industry Dynamics, and Growth. Economic Research Initiatives at Duke (ERID), (172).
Iacopetta, M., R. Minetti, and P. F. Peretto. “Financial Markets, Industry Dynamics, and Growth.” Economic Research Initiatives at Duke (ERID), no. 172 (August 27, 2014).
Iacopetta M, Minetti R, Peretto PF. Financial Markets, Industry Dynamics, and Growth. Economic Research Initiatives at Duke (ERID). 2014 Aug 27;(172).
Iacopetta, M., et al. “Financial Markets, Industry Dynamics, and Growth.” Economic Research Initiatives at Duke (ERID), no. 172, Aug. 2014.
Iacopetta M, Minetti R, Peretto PF. Financial Markets, Industry Dynamics, and Growth. Economic Research Initiatives at Duke (ERID). 2014 Aug 27;(172).

Published In

Economic Research Initiatives at Duke (ERID)

Publication Date

August 27, 2014

Issue

172