Transcript Slide 1

Political Economy and Corporate
Governance:
a cross – country analysis of political
systems, legal traditions and
ownership structure
Renira C. Angeles
14.10.2010
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Background
• Corporate governance: Owner, manager and
the board
• Factor of production
• Agency problems (Jensen and Meckling 1976)
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Dependent variables
Determinants of variations in:
1. Investor protection
2. Ownership concentration
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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
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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?
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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)
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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
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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
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Ownership structure (Y2)
- 10 % cut-off point
- 20 % cut-off point
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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
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Two analysis
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Analysis I
Y1: Investor protection
x1:Legal origins variables
(countries aggregated in categories)
x2:Political determinants
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Analysis II
Y2: Ownership structure
x1: Legal origins
(countries aggregated in categories)
x2: Political determinants
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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
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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,)
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Variable
Dataset
Year
Adr.
Dependent variables
Investor protection
(Antidirector right
index)
Investment
protection and
corporate
governance
2000
http://mba.tuck.dartmout
h.edu/pages/faculty/rafael
.laporta/publications.html
Ownership
structure
Blockholders.
Ownership cut off
point
2002-2006,
1996-1999?
AMADEUS or Mara Faccio:
http://www.krannert.purd
ue.edu/faculty/mfaccio/ho
me.asp
Independent variables
Legal models
(categorized)
Investment
protection and
corporate
governance
2000
http://mba.tuck.dartmout
h.edu/pages/faculty/rafael
.laporta/publications.html
Political
determinants
World bank,
Armingeon I,
Pippa Norris
1975-2006,
1960-2006,
1994-2006
(it’s learning)
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Empirical evidence
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Preliminary literature
Jensen, Michael C. and William H. Meckling 1976.
“Theory of the Firm: Managerial behavior, agency cost
and ownership structure”. Journal of Financial
Economics. 3 (4). pp. 305-360.
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei
Schleifer. 1999. ”Corporate ownership around the
World”. The Journal of Finance. 54 (2). pp. 471-517
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei
Schleifer, Robert W. Vishny. 1998. ”Law and Finance”.
The Journal of Political Economy. 106 (6). pp. 1113 –
1155
Pagano, Marco and Paolo F. Volpin. 2005. The Political
Economy of Corporate Governance. The American
Economic Review. 95 (4). pp. 1005-1030
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