Rents and their Corporate Consequences

Product markets are weaker in some nations than they are in others. Weaker product markets, and the concomitant monopoly rents, can affect corporate governance. They can do so directly by loosening a constraint on managers, thereby increasing managerial agency costs to shareholders - costs that shareholders would then seek to reduce otherwise. The monopoly profits can also affect corporate governance structures indirectly by setting up a fertile field for conflict inside the firm as the corporate players - shareholders, managers, and employees - seek to grab those monopoly profits for themselves. One would expect corporate governance structures, laws, and practices in nations with monopoly-induced high agency costs to differ from those prevailing in nations with more competition, fewer monopolies, and lower agency costs. And we might speculate that these rents when large and widespread could affect democratic politics and law-making: directly by making monopolists political targets (and political forces); and indirectly as the players inside the firm seek to capture those monopoly profits through political action, with political parties and ideologies (and, in time, laws and standards) that parallel the players' places inside the firm. Data from the industrial organization, finance economics, and political science literature is consistent.