Working Paper: CEPR ID: DP3956
Authors: David Thesmar
Abstract: This Paper argues that shareholder activism can be considered as similar to the adoption of increasing returns-to-scale technology by financial institutions. I start from this mechanism to build a model designed to assess the long-run consequences of shareholder pressure. I then use this model to analyse the interaction between shareholder pressure, savings dynamics and growth. The main consequence is that the economy exhibits multiple steady state equilibria. Two important implications are derived: first, temporary population changes have long lasting effects. Second, small technology improvements may lead to large changes in welfare. I then feed the model with an additional assumption: managers are employment friendly. This allows us to study the relation between corporate control, growth and the demand for skill. It also allows us to address concerns raised by the proponents of the stakeholder society in a formal framework. Finally, I provide some empirical evidence that shareholder pressure actually has a macroeconomic impact on growth and labour demand, in line with some of the model predictions.
Keywords: Capital; Assumption; Corporate Governance; Demography; Inequality
JEL Codes: G23; G34; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shareholder activism (G34) | improved corporate governance (G38) |
| improved corporate governance (G38) | managerial effort (D29) |
| managerial effort (D29) | productivity (O49) |
| productivity (O49) | savings dynamics (E21) |
| shareholder activism (G34) | productivity (O49) |
| shareholder activism (G34) | savings dynamics (E21) |
| managerial effort (D29) | demand for skilled labor (J24) |
| shareholder pressure (G34) | macroeconomic impacts on growth (F62) |
| shareholder pressure (G34) | labor demand (J23) |