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The Political Economy of Corporate Governance

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  • Pagano, Marco
  • Volpin, Paolo

Abstract

The Paper analyses the political decision that determines the degree of investor protection. We show that entrepreneurs and workers can strike a political agreement by which low investor protection is exchanged for high employment protection. This ‘corporatist’ agreement is feasible if the political system favours the formation of coalition governments. In contrast, ‘non-corporatist’ countries will feature high investor protection and low employment protection. The model also shows that the more diffused is share ownership, the higher the chosen degree of shareholder protection. Finally, the model predicts the frequency of mergers and acquisitions to be negatively correlated with employment protection. These predictions are shown to be consistent with OECD evidence.

Suggested Citation

  • Pagano, Marco & Volpin, Paolo, 2001. "The Political Economy of Corporate Governance," CEPR Discussion Papers 2682, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:2682
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    References listed on IDEAS

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    More about this item

    Keywords

    Acquisitions; Corporate Governance; Employment Legislation; Mergers; Political Economy; Shareholder Protection;
    All these keywords.

    JEL classification:

    • 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

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