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Co-evolution of politics and corporate governance

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  • Belloc, Marianna
  • Pagano, Ugo

Abstract

In the OECD countries, there exists a negative cross-country correlation between an economy's degree of employment protection and its degree of corporate ownership dispersion. One explanation is that employees' political rights influence corporate governance: systems characterized by strong employees' rights tend to be balanced by strong and concentrated owners. In this approach, the separation between ownership and control is only possible when unions and social democratic parties are sufficiently weak. In this paper we argue that causation runs also in the opposite direction (from strong concentrated ownership to strong employees' protection) and leads to multiple equilibria characterized by alternative co-evolution paths of politics and corporate governance. To empirically assess our theoretical arguments we estimate a simultaneous equation model for workers rights' protection and corporate ownership structure determination by three-stage least squares in a sample of 21 OECD countries. We conclude by arguing that the relative relevance of each flow of causation has important economic policy implications.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 29 (2009)
Issue (Month): 2 (June)
Pages: 106-114

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Handle: RePEc:eee:irlaec:v:29:y:2009:i:2:p:106-114

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Employment protection Corporate governance Social democracy Three stage least square;

References

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  1. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
    • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  2. Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
  3. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "What Works in Securities Law?," NBER Working Papers 9882, National Bureau of Economic Research, Inc.
  4. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  5. Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 1998. "Corporate Ownership Around the World," NBER Working Papers 6625, National Bureau of Economic Research, Inc.
  6. Julian Franks & Colin Mayer & Stefano Rossi, 2005. "Spending Less Time with the Family: The Decline of Family Ownership in the United Kingdom," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 581-612 National Bureau of Economic Research, Inc.
  7. Marco Pagano & Paolo Volpin, 1999. "The Political Economy of Corporate Governance," CSEF Working Papers 29, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2005.
  8. Juan Botero & Simeon Djankov & Rafael LaPorta & Florencio López-de-Silanes & Andrei Shleifer, . "The Regulation of Labor," Working Paper 19483, Harvard University OpenScholar.
  9. Pagano, Ugo, 2000. "Public markets, private orderings and corporate governance," International Review of Law and Economics, Elsevier, vol. 20(4), pages 453-477, December.
  10. Beck, T.H.L. & Clarke, G. & Groff, A. & Keefer , P. & Walsh, P., 2001. "New tools in comparative political economy: The database of political institutions," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125517, Tilburg University.
  11. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
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Citations

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Cited by:
  1. Marianna Belloc & Ugo Pagano, 2008. "Politics-Business Interaction Paths," Working Papers 109, University of Rome La Sapienza, Department of Public Economics.
  2. Emmanuel Adegbite & Kenneth Amaeshi & Olufemi Amao, 2012. "The Politics of Shareholder Activism in Nigeria," Journal of Business Ethics, Springer, vol. 105(3), pages 389-402, February.
  3. Fabio Landini & Ugo Pagano, 2013. "Synergy, Conflict and Institutional Complementarities," Department of Economics University of Siena 686, Department of Economics, University of Siena.

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