Corporate control rights and the long-run equity risk premium |
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| Authors: | Roelof Salomons Elmer Sterken |
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| Affiliation: | 1. Department of Economics, University of Groningen, The Netherlands;2. AEGON Asset Management, The Hague, The Netherlands;3. CESifo, Munich, Germany;1. Queen’s University Management School, Queen’s University Belfast, UK;3. Department of Economics and Business, Aarhus University, Denmark;4. CREATES, Aarhus University, Denmark;1. Department of Mathematics, Chiang Mai University, Chiang Mai 50200, Thailand;2. Department of Mathematics, Maejo University, Chiang Mai 50290, Thailand;3. Institute of Mathematics, VAST, 18 Hoang Quoc Viet Road, Hanoi 10307, Vietnam;1. Jiangsu Province Cultivation Base for State Key Laboratory of Photovoltaic Science and Technology, Changzhou University, Changzhou, 213164 Jiangsu, China;2. Jiangsu Collaborative Innovation Center of Photovolatic Science and Engineering, Changzhou University, Changzhou, 213164 Jiangsu, China;3. Micro/Nano Science and Technology Center, Jiangsu University, Zhenjiang 212013, China |
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| Abstract: | We address the role of incomplete contracting in the equity market in a long-run growth model. Equity delivers control rights, but holding equity might lead to disutility, since the right to vote is costly to carry. We analyze voting power and its burden in a equilibrium growth model. One of our main contributions is that we test our ex ante equity premium model using data for 44 countries over the years 1989–2005. Higher capital productivity, inflation and valuation of leisure increase the ex ante equity premium, as does lower population growth. |
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