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Politics-Business Interaction Paths

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  • Marianna Belloc
  • Ugo Pagano

Abstract

Countries characterized by strong workers’ political rights tend to exhibit a strong and concentrated corporate ownership structure. One explanation is that employees' political rights influence corporate governance: systems characterised 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 interaction paths of Politics and Corporate Governance. To empirically assess our theoretical arguments, we run Bayesian simultaneous equation estimation and perform Bayesian model comparison of the various theories for employment protection determination. We obtain that the concentration model is more likely than other models in the determination of employment protection. We conclude by exploring economic policy implications.

Suggested Citation

  • Marianna Belloc & Ugo Pagano, 2008. "Politics-Business Interaction Paths," Working Papers 109, University of Rome La Sapienza, Department of Public Economics.
  • Handle: RePEc:sap:wpaper:wp109
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    References listed on IDEAS

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    1. Belloc, Marianna & Pagano, Ugo, 2009. "Co-evolution of politics and corporate governance," International Review of Law and Economics, Elsevier, vol. 29(2), pages 106-114, June.
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    Citations

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    Cited by:

    1. Massimiliano Vatiero, 2017. "On The (Political) Origin Of ‘Corporate Governance’ Species," Journal of Economic Surveys, Wiley Blackwell, vol. 31(2), pages 393-409, April.
    2. repec:bla:kyklos:v:70:y:2017:i:2:p:330-343 is not listed on IDEAS
    3. Massimiliano Vatiero, 2017. "Learning from the Swiss Corporate Governance Exception," Kyklos, Wiley Blackwell, vol. 70(2), pages 330-343, May.

    More about this item

    Keywords

    employment protection; corporate governance; ownership concentration; Bayesian model estimation; Bayesian model comparison.;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J50 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • P10 - Economic Systems - - Capitalist Systems - - - General

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