Business Ethics and Corporate Governance, Second Edition

LACK OF COMPETITION PROMOTES OWNERSHIP CONCENTRATION

Lack of competition accentuates ownership concentration. Owners of incumbent firms have an incentive to retain control of profitable domestic operations. They may choose to remain a private firm or may go public, but without giving up control either by retaining a controlling stake or by issuing non-voting shares. Research findings show that a higher share of the leading firms remains private in less competitive markets. Even within the group of publicly traded companies, a higher proportion of closely held firms are observed in less competitive economies such as India.

While concentrated ownership in individual firms may not cause much concern, there is nonetheless a greater risk of abuse ...