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)
Potential agency problems
Curious about factors behind variations in practice

3. Dependent variables
Determinants of variations in: 1. Investor protection 2. Ownership concentration
Ownership 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 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
This 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=49
Findings:
High protection, dispersed ownership
Low protection, concentrated ownership
Convincing?

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)
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 protection
Investor protection exogenous
Pol.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 an
extraordinary meeting < 10 %
- cumulative voting
- oppressed minorities are protected
Is this index adequate?
Revised by Holger Spamann 2010
Spamann 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 here
Either data from or 2002 – 2006
Need 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
- Left
Still not sure about political variables

11. Two analysis

12. Analysis I x1:Legal origins variables Y1: Investor protection
(countries aggregated in categories)
x2:Political determinants

13. Analysis II
Y2: Ownership structure x1: Legal origins (countries aggregated in categories) x2: Political determinants
In order to connect to corporate governance.
Why is ownership structure interesting? Agency problems, returns, mispricing.
Interesting further questions: ownership structure and productivity.

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

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 variables
Investor protection
(Antidirector right index)
Investment protection and corporate governance
2000
Ownership structure
Blockholders.
Ownership cut off point , ?
AMADEUS or Mara Faccio:
Independent variables
Legal models
(categorized)
Political determinants
World bank, Armingeon I,
Pippa Norris , ,
(it’s learning)

17. Empirical evidence

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