https://macropaperwarehouse.com/authors/alessandra-peter/Alessandra PeterHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/equity-frictions-and-firm-ownership/https://macropaperwarehouse.com/papers/equity-frictions-and-firm-ownership/<p>Most quantitative models of entrepreneurship assume that large firms are widely held and unconstrained; this paper documents that across the Eurozone they are frequently not, and asks what that implies for output and for the distribution of wealth. Combining household survey, listed-firm and ownership microdata for nine Eurozone countries, the paper finds that insiders hold over 40% of the equity of the average publicly traded firm, that private firms are typically held by a single shareholder, and that the share of <em>total</em> firm equity held directly by entrepreneurs ranges from around 10% in Austria to over 75% in the Netherlands — variation far wider than the corresponding spread in leverage, which runs from 43% in Belgium to 63% in Italy. To interpret these differences the paper builds a Bewley–Huggett–Aiyagari model in which risk-averse entrepreneurs choose among inside equity, debt and outside equity subject to three country-specific frictions — a fixed IPO cost, a proportional monitoring cost that scales with the outside-equity share, and a maximum leverage constraint — and estimates those frictions for France, Germany, Austria and the Netherlands. Quantitatively, equity frictions matter more for output than debt frictions on both margins the paper considers: removing equity frictions raises steady-state output by 5.3% on average against 3% for debt frictions, and harmonising equity frictions to the French level changes output by 1.9% on average against 0.5% for debt — nearly four times as large. Because outside equity lets entrepreneurs offload risk rather than only fund investment, lower equity frictions raise output <em>and</em> lower wealth concentration, breaking the equality–efficiency trade-off that holds for debt; the model reproduces 73% of the observed cross-country variation in top-10% wealth shares and the correct country ranking, though it overstates the level of inequality in all four countries.</p>