The Dark Side of Shareholder Protection: Cross-country Evidence from Innovation Performance
AbstractProponents of minority shareholder protection state that national legal institutions protecting small investors boost stock markets and, in turn, long-term countries’ performance. In this paper, we empirically challenge this argument. We perform three-stage least-square estimation on a sample of 48 countries over 1993-2006 and find that countries with stronger shareholder protection tend to have larger market capitalization but also lower innovation activity. We cope with stock market’s endogeneity and industry heterogeneity, and circumvent omitted variables bias, so that this finding is unlikely to be driven by misspecification problems. We interpret our estimation results arguing that stronger shareholder protection may depress, rather than encourage, the most valuable corporate productions, because it enables small and diversified shareholders to play opportunistic actions against undiversified stockholders, after specific investments are undertaken by the company; innovation activity, largely based on specific investing, is particularly exposed to this problem.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 583.
Date of creation: Jan 2010
Date of revision:
shareholder protection; innovation; specific investments; inter-shareholder opportunism.;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- P12 - Economic Systems - - Capitalist Systems - - - Capitalist Enterprises
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Christian Bjï¿½rnskov & Niklas Potrafke, 2012.
"Political Ideology and Economic Freedom Across Canadian Provinces,"
Eastern Economic Journal,
Palgrave Macmillan, vol. 38(2), pages 143-166.
- Christian BjÃ¸rnskov & Niklas Potrafke, 2009. "Political ideology and economic freedom across Canadian provinces," Working Papers CEB, ULB -- Universite Libre de Bruxelles 09-054.RS, ULB -- Universite Libre de Bruxelles.
- BjÃ¸rnskov, Christian & Potrafke, Niklas, 2012. "Political ideology and economic freedom across Canadian provinces," Munich Reprints in Economics, University of Munich, Department of Economics 20277, University of Munich, Department of Economics.
- Langlois, Richard N., 2013.
"Business groups and the natural state,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 88(C), pages 14-26.
- Belloc, Filippo, 2010. "Corporate governance and innovation: an organizational perspective," MPRA Paper 21495, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabrizio Becatti).
If references are entirely missing, you can add them using this form.