Showing papers by "Rafael La Porta published in 1996"

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.

Trust in Large Organizations

Abstract: Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.

Trust in Large Organizations

Abstract: Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.

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 french civil 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 share†holders are unlikely to be important in countries that fail to protect their rights.

Expectations and the Cross-Section of Stock Returns

Abstract: Previous research has shown that stocks with low prices relative to book value, cash flow, earnings, or dividends (that is, value stocks) earn high returns. Value stocks may earn high returns because they are more risky. Alternatively, systematic errors in expectations may explain the high returns earned by value stocks. I test for the existence of systematic errors using survey data on forecasts by stock market analysts. I show that investment strategies that seek to exploit errors in analysts' forecasts earn superior returns because expectations about future growth in earnings are too extreme. IT IS BECOMING INCREASINGLY accepted that stock returns have a predictable component. Fama and French (FF, 1992) find that size (the market value of a stock's equity) and the ratio of the book value of a firm's common equity to its market value (BM), but not 1B (the slope coefficient in the regression of a security's return on the market's return), capture much of the cross-section of average stock returns.' FF argue that size and BM are proxies for unobservable common risk factors, and that their findings are consistent with rational asset pricing. An alternative interpretation, argue Lakonishok, Shleifer, and Vishny (LSV, 1994), is that financial ratios have predictive power because they capture systematic errors in the way that investors form expectations about future returns, and because the stock market is not fully efficient. Strategies that call for the purchase of stocks with low prices relative to dividends, earnings, and

A New Bankruptcy Procedure that Uses Multiple Auctions - (Now published in 'European Economics Review', vol.41(3/5), 1997, pp.461-473.)

Abstract: We propose a new bankruptcy procedure that makes use of multiple auctions The procedure is designed to work even when capital markets do not function well (for example, in developing economies, or in economies in transition) - although it can be used in all economies

Trust in Large Organizations

Abstract: Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civic and professional societies, importance of large firms, and the performance of social institutions more generally supports this hypothesis. Moreover, trust is lower in countries with dominant hierarchical religions, which may have deterred networks of cooperation trust hold up remarkably well on a cross-section of countries.