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Corporate Governance and the Distribution of Wealth: A Political-Economy Perspective

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  • Enrico C. Perotti
  • Ernst-Ludwig von Thadden

Abstract

We present a theory in which the corporate governance structure in a country is determined by a political majority and show how this decision is related to the distribution of financial wealth. The main argument is that labor claims are exposed to undiversifiable risk, so voters with small financial stakes may prefer a corporate governance structure that reduces corporate risktaking. We discuss the inflationary experiences of different countries in the first part of the twentieth century and argue that the model may explain the "great reversal" phenomenon identified by Rajan and Zingales [2003].

Suggested Citation

  • Enrico C. Perotti & Ernst-Ludwig von Thadden, 2006. "Corporate Governance and the Distribution of Wealth: A Political-Economy Perspective," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(1), pages 204-217, March.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200603)162:1_204:cgatdo_2.0.tx_2-l
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    References listed on IDEAS

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    1. Colin Mayer & Julian Franks & Stefano Rossi, 2002. "The Origination and Evolution of Ownership and Control," Economics Series Working Papers 2003-FE-01, University of Oxford, Department of Economics.
    2. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
    3. Demirguc-Kunt, Asli & Levine, Ross, 1999. "Bank-based and market-based financial systems - cross-country comparisons," Policy Research Working Paper Series 2143, The World Bank.
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    Cited by:

    1. Ulrich Schwalbe, 2006. "The Political Economy of Dominant Investors. Comment," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(1), pages 222-224, March.
    2. Francis, Bill B. & Kim, Incheol & Wang, Bin & Zhang, Zhengyi, 2018. "Labor law and innovation revisited," Journal of Banking & Finance, Elsevier, vol. 94(C), pages 1-15.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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