The Quarterly Journal of Economics, Vol.112, No.3. (Aug.,1997), pp.693-728.
We proposed that dispersed outside ownership and the resulting managerial discreation come with costs but also with benefits. Even when tight control by shareholders is ex post efficient, it constitutes ex ante an expropriantion threat that reduces managerial initiative and noncontractible investments. In addition, we show that equity implements state contingent control, a feature ussualy associated with debt. Finally, we demonstrate that monitoring, and hence ownership concentration, may conflict with performance-based incentive schemes.
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