This paper is based on the presumption that the controlling shareholder of a corporate conglomerate increases control rights and so extracts more perquisite, by increasing the cross equity investment between affiliates.
The model suggests that the controlling shareholder’s private guarantee for firm’s debt can mitigate not only the agency problem of debt but also the agency problem of outside equity (perquisite). The practice of private guarantee is viable because it ultimately serves the controlling shareholder’s interest.
Further, the model implies that the problem of tunneling (perquisite) should be resolved by establishing a circumstance where extracting perquisite is impossible. If perquisite can not be completely removed, introducing a direct regulation on cross equity investment may rather hamper efficiency. Instead, expanding the controlling shareholder’s responsibility is effective in mitigating the agency problems.
학회 소식
공지사항
[2005년 제 2차] Equity Investment within a Corporate Conglomerate
작성자 : 관리자
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게시일 :
2005-06-03
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