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Political Economy and Corporate Governance: a cross – country analysis of political systems, legal traditions and ownership structure Renira C. Angeles.

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Presentation on theme: "Political Economy and Corporate Governance: a cross – country analysis of political systems, legal traditions and ownership structure Renira C. Angeles."— Presentation transcript:

1 Political Economy and Corporate Governance: a cross – country analysis of political systems, legal traditions and ownership structure Renira C. Angeles

2 Background Corporate governance: Owner, manager and the board Factor of production Agency problems (Jensen and Meckling 1976) 2

3 Dependent variables Determinants of variations in: 1. Investor protection 2. Ownership concentration 3

4 Base of this analysis Investor protection and legal origins, N=49 (La Porta et al. 1997;1998;1999;2008) Findings - LLSV legal rules protecting investors vary systematically among legal traditions - Common Law (US, UK, etc.): low investor protection - Civil Law (France): high investor protection Convincing? Static Assumes stock markets in low – protection countries ”doomed” to not expand 4

5 Ownership concentration Dispersed ownership UK, US (Berle and Means 1932)  WHY? Ownership structure and legal origins (La Porta et al. 1998) N=49 Findings: -High protection, dispersed ownership -Low protection, concentrated ownership Convincing? 5

6 Political determinants on investor protection and ownership structure Purpose of this analysis: Propose a model of political determinants of investor protection and ownership structure  How can variations in electoral systems explain the observed variations in degree of investor protection and ownership structure? Want a more adequate and precise analysis to get a deeper understanding of the variations Insights from Tabellini and Persson (2002) Left – right dimension Ljiphart (1984) 6

7 Base – political determinants The Political Economy of Corporate Governance (Pagano and Volpin 2005) Analyze political determinants of investor protection Investor protection exogenous Pol.var. included: proportionality, left, right, district size*maj, threshold*PR 7

8 Dependent variables Investor protection (Y 1 ) Antidirector rights index (ADRI) from LLSV (1998): - proxy by mail - shares not blocked before meeting - share of capital to call required to call an extraordinary meeting < 10 % - cumulative voting - oppressed minorities are protected 8

9 Ownership structure (Y 2 ) -10 % cut-off point -20 % cut-off point 9

10 Independent variables Legal Origins - Common Law (UK, US, New Zealand, Italy, Australia, etc.) - Civil Law (Austria, Germany, Switzerland, France, Greece, Finland et.) Political variables - PR - Maj - Left 10

11 Two analysis 11

12 Analysis I Y 1 : Investor protection x 1 :Legal origins variables (countries aggregated in categories) x 2 :Political determinants 12

13 Analysis II Y 2 : Ownership structure x 1 : Legal origins (countries aggregated in categories) x 2 : Political determinants 13

14 Hypothesis Assumption legal model: Reforms in investor protection rare ( La Porta et al. 1998) Common law  high protection  dispersed ownership Civil law  low protection  concentrated ownership 14

15 Political determinants PR  low protection  concentrated ownership (Why? Greater proportionality, more representation, value government, coordinated and weak markets) Maj  high protection  dispersed ownership (Why? Less government/welfare state, Liberal markets, less employee protection,) 15

16 VariableDatasetYearAdr. Dependent variables Investor protection (Antidirector right index) Investment protection and corporate governance h.edu/pages/faculty/rafael.laporta/publications.html Ownership structure Blockholders. Ownership cut off point , ? AMADEUS or Mara Faccio: ue.edu/faculty/mfaccio/ho me.asp Independent variables Legal models (categorized) Investment protection and corporate governance h.edu/pages/faculty/rafael.laporta/publications.html Political determinants World bank, Armingeon I, Pippa Norris , , (it’s learning) 16

17 Empirical evidence 17

18 Preliminary literature Jensen, Michael C. and William H. Meckling “Theory of the Firm: Managerial behavior, agency cost and ownership structure”. Journal of Financial Economics. 3 (4). pp La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Schleifer ”Corporate ownership around the World”. The Journal of Finance. 54 (2). pp La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Schleifer, Robert W. Vishny ”Law and Finance”. The Journal of Political Economy. 106 (6). pp – 1155 Pagano, Marco and Paolo F. Volpin The Political Economy of Corporate Governance. The American Economic Review. 95 (4). pp


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