Shareholder Protection, Stock Market Development, and Politics
Abstract
This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder base and increases support for shareholder protection. This feedback loop can generate multiple equilibria, with investor protection and stock market size being positively correlated across equilibria. The model’s predictions are tested on panel data for 47 countries over 1993-2002, controlling for country and year effects and endogeneity issues. We also document international convergence in shareholder protection to best-practice standards, and show that it is correlated with cross-border M&A activity, consistent with the model.Download Info
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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 149.Length:
Date of creation: 01 Nov 2005
Date of revision:
Publication status: Published in the Journal of the European Economic Association, 2006, vol. 4, pages 315-41
Handle: RePEc:sef:csefwp:149
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Related research
Keywords: political economy; shareholder protection; corporate governance; stock market;Other versions of this item:
- Pagano, Marco & Volpin, Paolo, 2005. "Shareholder Protection, Stock Market Development and Politics," CEPR Discussion Papers 5378, C.E.P.R. Discussion Papers.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-12-01 (All new papers)
- NEP-CFN-2005-12-01 (Corporate Finance)
- NEP-FIN-2005-12-01 (Finance)
- NEP-LAW-2005-12-01 (Law & Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Korkeamaki, Timo & Koskinen, Yrjo & Takalo, Tuomas, 2007.
"Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis,"
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Elsevier, vol. 3(1), pages 33-58, April.
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WEF Working Papers
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