This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

Law and Finance

This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common-law countries generally have the strongest, and Frenchcivil-law countries the weakest, legal protections of investors, with German- and Scandinavian-civil-law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

/pdf/a-survey-of-corporate-governance-36f3yobhy4.pdf

This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods. We find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented

/pdf/returns-to-buying-winners-and-selling-losers-implications-47r2et8t86.pdf

Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

We mailed letters to non-existent business addresses in 159 countries (10 per country), and measured whether they come back to the return address in the United States and how long it takes. About 60% of the letters were returned, taking over six months, on average. The results provide new objective indicators of government efficiency across countries, based on a simple and universal service, and allow us to shed light on its determinants. The evidence suggests that both technology and management quality influence government efficiency, just as they do that of the private sector.

/pdf/letter-grading-government-efficiency-56ehvqe2ng.pdf

Letter Grading Government Efficiency

The takeover wave of the 1980s moved large enterprises toward specialization and away from the diversification of the 1960s. The easy availability of funds made acquisitions affordable, while the hands-off antitrust policy allowed mergers between two firms in the same industry. Hostile takeovers and leveraged buyouts fostered the break up of conglomerates and the sell-off of divisions to buyers in the same industry; they helped speed the economy-wide move toward specialization. The poor performance of conglomerates indicates that this trend toward specialization is likely to make U.S. industry more competitive. Current state antitakeover laws are probably the result of intense lobbying by managers trying to entrench themselves; these laws do not promote competitiveness of U.S. industry. In contrast, the current accommodating federal antitrust stance encourages specialization.

https://science.sciencemag.org/content/sci/249/4970/745.full.pdf

The Takeover Wave of the 1980s

Economists directly observe warranted “fundamental” values in only a few cases. One is that of closed-end mutual funds: their fundamental value is simply the current market value of the securities that make up their portfolios. We use the difference between prices and net asset values of closed-end mutual funds at the end of the 1920s to estimate the degree to which the stock market was overvalued on the eve of the 1929 crash. We conclude that the stocks making up the S & P composite were priced at least 30 percent above fundamentals in late summer, 1929.

/pdf/the-stock-market-bubble-of-1929-evidence-from-clsoed-end-2y7f69k85s.pdf

The stock market bubble of 1929: evidence from clsoed-end mutual funds

We investigate the relation between management ownership and corporate performance, as measured by Tobin's Q. In a cross-section of Fortune 500 firms, Tobin's Q first increases and then declines as board of directors holdings rise. For older firms there is weak evidence that Q is lower when a firm is run by a member of the founding family than when it is run by an officer unrelated to the founder.

/pdf/management-ownership-and-corporate-performance-an-empirical-4s0qyd4rlk.pdf

Andrei Shleifer

Papers

Letter Grading Government Efficiency

The Takeover Wave of the 1980s

The Takeover Wave of the 1980s

The stock market bubble of 1929: evidence from clsoed-end mutual funds

Management Ownership and Corporate Performance: An Empirical Analysis