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The Political Economy of Corporate Governance

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  • Marco Pagano
  • Paolo F. Volpin

Abstract

We analyze the political determinants of investor and employment protection. Our model predicts that proportional electoral systems are conducive to weaker investor protection and stronger employment protection than majoritarian systems. This prediction is consistent with international panel data evidence. The proportionality of the voting system is significantly and negatively correlated with shareholder protection in a panel of 45 countries, and positively correlated with employment protection in a panel of 21 OECD countries. Other political variables also affect regulatory outcomes, especially for the labor market. The origin of the legal system has some additional explanatory power only for employment protection.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/0002828054825646
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 4 (September)
Pages: 1005-1030

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Handle: RePEc:aea:aecrev:v:95:y:2005:i:4:p:1005-1030

Note: DOI: 10.1257/0002828054825646
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  1. Perotti, Enrico C & von Thadden, Ernst-Ludwig, 2003. "The Political Economy of Bank and Equity Dominance," CEPR Discussion Papers 3914, C.E.P.R. Discussion Papers.
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