Erik Berglöf

Bio: Erik Berglöf is an academic researcher from London School of Economics and Political Science. The author has contributed to research in topics: Corporate governance & European union. The author has an hindex of 33, co-authored 75 publications receiving 4708 citations. Previous affiliations of Erik Berglöf include European Bank for Reconstruction and Development & Université libre de Bruxelles.

Short-Term versus Long-Term Interests: Capital Structure with Multiple Investors

Abstract: We study the problem of financial contracting and renegotiation between a firm and outside investors when the firm cannot commit to future payouts, but assets can be contracted upon. We show that a capital structure with multiple investors specializing in short-term and long-term claims is superior to a structure with only one type of claim, because this hardens the incentives for the entrepreneur to renegotiate the contract ex post. Depending on the parameters, the optimal capital structure also differentiates between state-independent and state-dependent longterm claims, which can be interpreted as long-term debt and equity. © 1994 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

The Great Divide and Beyond - Financial Architecture in Transition

Abstract: A growing and deepening divide has opened up between countries where economic development has "taken off" and those caught in a vicious cycle of institutional backwardness and macroeconomic instability. This "Great Divide" is visible in almost every measure of economic performance, such as GDP growth, investment, government finances, growth in inequality and general institutional infrastructure, and increasingly in measures of financial development. Countries that have made it to the "right" side of the divide (Hungary, Poland, Slovenia, the Baltic States) have pursued a remarkable diversity of policies aimed at financial development. Yet, strikingly, the basic financial architectures of these frontrunners today are remarkably similar: strongly dominated by commercial banks, increasingly foreign owned, which lend primarily to government. Stock markets are highly volatile and illiquid, and their sustainability is in question as the numbers of listed firms are stagnating or even falling. Enterprises rely most on internally generated funds, and essentially all external long-term finance comes from foreign direct investment. This article finds little evidence that finance has lead to increased growth in the transition countries; in fact, financial expansion has in some countries lead to soft budget constraints and undermined growth. Financial development and growth appear to be jointly determined by fiscal and monetary discipline, at the macro level, and contract enforcement, at the micro level. These factors, in turn, seem related to underlying variables like income inequality and recent experience of rule of law.

A Control Theory of Venture Capital Finance

Abstract: This article analyzes how an entrepreneur and an external investor allocate revenues and control among themselves in a venture capital relationship, given that they want to liquidate their holdings in the future. Within an incomplete contracting framework we generate contractual arrangements that closely resemble those observed in venture capital markets. In particular, we explain the predominance of preferred stock and convertible instruments. Copyright 1994 by Oxford University Press.

The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries

Abstract: The rapidly growing literature studying the relationship between legal origin, investor protection and finance has stimulated an important debate in academic circles. It has also generated a cottage industry of applied research and strong policy statements. This paper discusses the implications, in particular for developing and transition countries, from this literature. Our general conclusion is that its focus on the plight of small investors is too narrow when applied to these countries. We argue that this group is unlikely to play an important role in most developing and transition countries. External investors may still be crucial, particularly in transition countries, but they are more likely to come in as strategic investors or creditors. The paper also proposes a broader paradigm including other stakeholders and mechanisms of governance in order to better understand the problems facing these countries and generate policy implications that compensate for the weaknesses of capital markets.

Law and Finance

Abstract: 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

Abstract: 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.

A Survey of Corporate Governance

Abstract: 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

Abstract: 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

Corporate Ownership Around the World

Abstract: We use data on ownership structures of large corporations in 27 wealthy economies to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to Berle and Means’s image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions is far less common. The controlling shareholders typically have power over firms significantly in excess of their cash f low rights, primarily through the use of pyramids and participation in management.