Corporate control rights and the long-run equity risk premium

We address the role of incomplete contracting in the equity market in a long-run growth model. Equity delivers control rights, but holding equity might lead to disutility, since the right to vote is costly to carry. We analyze voting power and its burden in a equilibrium growth model. One of our main contributions is that we test our ex ante equity premium model using data for 44 countries over the years 1989-2005. Higher capital productivity, inflation and valuation of leisure increase the ex ante equity premium, as does lower population growth.