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Showing papers by "Andrei Shleifer published in 1993"


Posted Content
TL;DR: In this paper, the authors provide evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor, and not because these riskier strategies are fundamentally riskier.
Abstract: For many years, stock market analysts have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor and not because these strategies are fundamentally riskier.

3,879 citations


Posted Content
TL;DR: In this article, the authors explore two reasons why rent-seeking, meaning any redistributive activity that takes up resources, is so costly to growth, and why public rentseeking by government officials is likely to hurt innovative activities more than everyday production.
Abstract: Economists from Adam Smith (1776) to Douglass C. North (1981) agree that poor protection of property rights is bad for growth. But why is this problem so severe? Why do Peru (Hernando De Soto, 1989) and Equatorial Guinea (Robert Klitgaard, 1990) fail to grow at all when public and private rent-seeking make property insecure? In this paper, we explore two reasons why rent-seeking, meaning any redistributive activity that takes up resources, is so costly to growth. First, rent-seeking activities exhibit very natural increasing returns. That is, an increase in rent-seeking activity may make rent-seeking more (rather than less) attractive relative to productive activity. This condition can lead to multiple equilibria in the economy, with "bad" equilibria exhibiting very high levels of rent-seeking and low output.l Second, rent-seeking, particularly public rent-seeking by government officials, is likely to hurt innovative activities more than everyday production. Since innovation drives economic growth, public rent-seeking hampers growth more severely than production.

1,469 citations


Posted Content
TL;DR: In this paper, the authors provide evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor, and not because these riskier strategies are fundamentally riskier.
Abstract: For many years, stock market analysts have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This paper provides evidence that value strategies yield higher returns because these strategies exploit the mistakes of the typical investor and not because these strategies are fundamentally riskier.

1,000 citations


ReportDOI
TL;DR: In this article, the authors show that the pace of city growth in western Europe from 1000 to 1800, under absolutist monarchs stunted the growth of commerce and industry.
Abstract: As measured by the pace of city growth in western Europe from 1000 to 1800, absolutist monarchs stunted the growth of commerce and industry. A region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government. This might be explained by higher rates of taxation under revenue-maximizing absolutist governments than under nonabsolutist governments, which care more about general economic prosperity and less about State revenue.

426 citations


Journal ArticleDOI
01 Jan 1993
TL;DR: In this paper, the authors examined the special case of Poland in the three years following the "big bang" of January 1, 1990 and examined the ownership and governance of state manufacturing companies.
Abstract: THE ECONOMIC DOMINANCE of the state sector makes its behavior and response crucial to the course of reform in the economies of Central and Eastern Europe. This paper examines the special case of Poland in the three years following the "big bang" of January 1, 1990. The big bang-a program of radical reform to create the legal, institutional, and economic basis for a market economy-was instrumental in changing relative prices, introducing foreign competition, and signaling that tight monetary and fiscal policies would be pursued. However, changes in the ownership and governance of state manufacturing companies have lagged behind. This delay in privatizing has raised concerns because the state sector has played a central role in Poland. In 1990, the first year of Poland's reform program, state manufacturing accounted for some 30 percent of

303 citations


Posted Content
TL;DR: This paper examined a sample of firms with such windfalls in the form of a won or settled lawsuit and found that the evidence supported the agency model of managerial behavior, in which managers try to ensure the long run survival and independence of the firms with themselves at the helm.
Abstract: Suppose that a firm receives a cash windfall which does not change its investment opportunity set, or equivalently its marginal Tobin's Q. What will this firm do with the money? We provide empirical answers to this question using a sample of firms with such windfalls in the form of a won or settled lawsuit. We examine a variety of decisions of the firm to shed light on alternative theories of corporate financing and investment. Our evidence is broadly inconsistent with the perfect capital markets model. The results need to be stretched considerably to fit the asymmetric information model in which managers act in the interest of shareholders. The evidence supports the agency model of managerial behavior, in which managers try to ensure the long run survival and independence of the firms with themselves at the helm.

191 citations


Journal ArticleDOI
TL;DR: Lee et al. as mentioned in this paper showed that even during the second half of their sample, when the relationship between closed-end fund discounts and small firm returns weakens, there is a significant relationship between return on stocks with low institutional ownership and changes in discounts.
Abstract: CHEN, KAN AND MILLER (1993, best pronounced CheK'M) provide a detailed critique of our earlier paper (Lee, Shleifer, and Tlialer (1991)). CKM accuse Lee et al. of trying to kill two birds-the closed-end fund puzzle and the small firm effect-with one stone and missing both. Their approach is to throw at Lee et al. every stone they can, presumably hoping that one will hit. This reply shows that none does. CKM focus on four empirical issues: 1) the role of utilities in the Lee et al. sample of small institutional ownership firms, 2) the robustness of the relationship between fund discounts and the returns on high versus low ownership firms (their Table I), 3) the appropriate way to specify the regression in Table IV of Lee et al. (their Table II), and 4) the regressions using one closed-end fund--TriContinental (their Table III). We address these criticisms in turn. CKM begin with the finding of Lee et al. that even during the second half of their sample, when the relationship between closed-end fund discounts and small firm returns weakens, there is a significant relationship between return on stocks with low institutional ownership and changes in discounts. CKM describe as a concession the finding of Lee et al. that most of these low ownership stocks are public utilities. However, this finding makes even more vivid the main claim of Lee et al. that stocks with similar ownership structures but very different fundamentals move together in the market. After all, what do public utilities have in common with closed-end funds other than a similar ownership structure? The one plausible common factor that might similarly affect closed-end fund discounts and prices of public utility stocks is small investor sentiment. CKM also say that they "tested a portfolio of NYSE public utility firms with more than 10 percent institutional ownership," and that their "results were essentially the same as for the sample with less than 10 percent ownership." They do not report these results, but have kindly provided us with their data. To investigate their claim, we divided all utilities into three groups of equal numbers of firms with high, low, and medium institutional ownership. We then ran regressions like those in Table VIII of Lee et al. for each group. The results in Table I of this paper show that low institutional

135 citations




Posted Content
TL;DR: As measured by the pace of city growth in western Europe from 1000 to 1800, a region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century as mentioned in this paper.
Abstract: As measured by the pace of city growth in western Europe from 1000 to 1800. absolutist monarchs stunted the growth of commerce and industry. A region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government. This might be explained by higher rates of taxation under revenue-maximizing absolutist governments than under non-absolutist governments. which care more about general economic prosperity and less about State revenue.

87 citations


Posted Content
TL;DR: In this paper, the main building blocks of a successful transition in Eastern Europe: stabilization, price liberalization, privatization, and restructuring are assessed, and the authors discuss how far this alternative strategy is likely to get.
Abstract: In their earlier report, Reform in Eastern Europe, the WIDER group assessed the main building blocks of a successful transition in Eastern Europe: stabilization, price liberalization, privatization, and restructuring. For the last three years this group of leading economists has been heavily involved in the reform process. In this new report, they take stock, returning to the original themes and assessing progress and prospects, particularly in Russia. Stabilization in the major Central European countries was done very much by the book. Russia, in contrast, is following a path of restructuring without stabilization. The authors discuss how far this alternative strategy is likely to get. Turning to privatization, they note that initial plans started from the assumption that the state owned the assets. As slow progress of those plans has painfully shown, this was the wrong assumption. They point out that assets have in fact many de facto claimants, from managers to workers to local authorities to ministries, and discuss how the current Russian privatization program starts and builds up from this more realistic assessment. In the face of a collapse of trade in Eastern Europe, triggered by reform in Central Europe and a similar collapse between republics following the breakup of the Soviet Union, the authors show how simple measures such as a payments union can be used to increase trade and output. Post-Communist Reform concludes with a look at restructuring in Poland. The authors focus on the behavior of the state, the growth of the private sector, the role of financial systems, and the coherence of overall government policy, ending on a note of cautious optimism.

Posted Content
TL;DR: As measured by the pace of city growth in western Europe from 1000 to 1800, a region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century as discussed by the authors.
Abstract: As measured by the pace of city growth in western Europe from 1000 to 1800. absolutist monarchs stunted the growth of commerce and industry. A region ruled by an absolutist prince saw its total urban population shrink by one hundred thousand people per century relative to a region without absolutist government. This might be explained by higher rates of taxation under revenue-maximizing absolutist governments than under non-absolutist governments. which care more about general economic prosperity and less about State revenue.