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 structureRenira C. Angeles
2 Background Corporate governance: Owner, manager and the board Factor of productionAgency problems (Jensen and Meckling 1976)Potential agency problemsCurious about factors behind variations in practice
3 Dependent variablesDeterminants of variations in: 1. Investor protection 2. Ownership concentrationOwnership most analysed empirically and teoretically, largest effect (Bøhren forthcoming)
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 amonglegal traditions- Common Law (US, UK, etc.): low investor protection- Civil Law (France): high investor protectionConvincing?StaticAssumes stock markets in low – protection countries ”doomed” to not expandThis papers derives from this pionering study. Convincing??
5 Ownership concentration Dispersed ownership UK, US (Berle and Means 1932) WHY?Ownership structure and legal origins (La Porta et al. 1998) N=49Findings:High protection, dispersed ownershipLow protection, concentrated ownershipConvincing?
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 variationsInsights from Tabellini and Persson (2002)Left – right dimension Ljiphart (1984)Justification of WHY you choose political insight?PTs interest was to identify causal effect of two poltical institutions pres versus parl and maj vs pr, on the amount of governments spending etc.
7 Base – political determinants The Political Economy of Corporate Governance (Pagano and Volpin 2005)Analyze political determinants of investor protectionInvestor protection exogenousPol.var. included: proportionality, left, right, district size*maj, threshold*PR
8 Dependent variables Investor protection (Y1) Antidirector rights index (ADRI) from LLSV (1998):- proxy by mail- shares not blocked before meeting- share of capital to call required to call anextraordinary meeting < 10 %- cumulative voting- oppressed minorities are protectedIs this index adequate?Revised by Holger Spamann 2010Spamann point out some problems, derived a new index and did a new analysis – over 50 % (36 of 46 ca.) of the countries used in the original analysis by La Porta et al. changed their index
9 Ownership structure (Y2) 10 % cut-off point 20 % cut-off point Problems hereEither data from or 2002 – 2006Need data from 2000, BUT ownership is usually stable (source)
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- LeftStill not sure about political variables
12 Analysis I x1:Legal origins variables Y1: Investor protection (countries aggregated in categories)x2:Political determinants
13 Analysis IIY2: Ownership structure x1: Legal origins (countries aggregated in categories) x2: Political determinantsIn order to connect to corporate governance.Why is ownership structure interesting? Agency problems, returns, mispricing.Interesting further questions: ownership structure and productivity.
14 HypothesisAssumption legal model: Reforms in investor protection rare ( La Porta et al. 1998)Common law high protection dispersed ownershipCivil law low protection concentrated ownership
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,)There are alot more dimensions to include when evidence from political variables are included.
16 Variable Dataset Year Adr. Dependent variablesInvestor protection(Antidirector right index)Investment protection and corporate governance2000Ownership structureBlockholders.Ownership cut off point,?AMADEUS or Mara Faccio:Independent variablesLegal models(categorized)Political determinantsWorld bank, Armingeon I,Pippa Norris,,(it’s learning)
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