CORPORATE GOVERNANCE AND CAPITAL ACCUMULATION: FIRM-LEVEL EVIDENCE FROM ITALY

This study investigates the impact of investor protection on firm ownership and capital growth in a model where investor protection is allowed to vary between firms. Using panel data for Italy, we construct firm-level variables to capture the degree of investor protection, which is observable to all shareholders. Empirical evidence indicates that the stronger the investor protection the lower the fraction of equity that is owned by insiders. Results show that higher insider equity ownership is linked to larger risk premiums and higher costs of capital. Implications suggest that the magnitude of capital stock distortions is particularly important when shareholder protection is weak and ownership concentration is high.