Abstract: We set up a model to study how ownership structure, corporate law
and employment law interact to set the incentives that infuence the decision by the large shareholder or manager effectively controlling the firm
to divert resources from minority shareholders and employees. We suggest that agency problems between the controller and other investors and
holdup problems between shareholders and employees are connected if the
controller bears private costs of “expropriating” these groups. Corporate
law and employment law may therefore somethimes be substitutes; employees may benefit from better corporate law inteded to protect minority
shareholder, and vice versa. Our model has implications for the domestic and comparative study of corporate governance structure and addresses,
among other things, the question whether large shareholders are better able
to ”bond” with employees than dispersed ones, or whether the separation
of ownership facilitates long-term relationships with labor.