INVESTOR PROTECTION AND FINANCIAL SYSTEM STRUCTURE

Investor Protection and Asset Pricing∗

Corporations in most countries are run by controlling shareholders, who have substantially smaller cash flow rights than their control rights in the firm. This separation of ownership and control allows the controlling shareholders to pursue private benefits at the cost of outside minority investors by diverting resources away from the firm and distorting corporate investment and payout policie...

The Effect of Investor Protection

This paper tests the hypotheses that poor investor-protection environments lead to higher information asymmetry in security markets. We compare China-based stocks, which operate in a relatively unprotected environment, to Hong Kong-based stocks. The information component in the market friction of China stocks is shown to be up to 20% larger than that of Hong Kong-based stocks. The effect is rob...

The Politics of Investor Protection and Competition

External finance is critical for less established entrepreneurs, so poor investor protection can hinder competition. We model how lobbying for weaker investor protection reduces access to finance and decreases competition in countries where politicians are less accountable to voters. Weaker accountability thus produces a smaller economic elite. As empirical support for this result, in a broad p...

Balancing collateral efficiency versus investor protection

Agrarian Structure and Endogenous Financial System Development

The development of the financial system is shown, both historically and in contemporary data, to be adversely affected by inequality in the distribution of land. To accommodate these empirical findings, a theory is developed that highlights the incentives of landowners to oppose competition in the financial sector. The theory provides an explanation for the co-incident development of the financ...