Author
Rafael La Porta
Other affiliations: Harvard University, National Bureau of Economic Research, Brown University
Bio: Rafael La Porta is an academic researcher from Dartmouth College. The author has contributed to research in topics: Shareholder & Enforcement. The author has an hindex of 66, co-authored 107 publications receiving 107032 citations. Previous affiliations of Rafael La Porta include Harvard University & National Bureau of Economic Research.
Topics: Shareholder, Enforcement, Capital market, Expropriation, Government
Papers published on a yearly basis
Papers
More filters
TL;DR: The authors investigated empirically the determinants of the quality of governments in a large cross-section of countries and found that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance.
Abstract: We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnolinguistically heterogeneous, use French or socialist laws, or have high proportions of Catholics or Muslims exhibit inferior government performance. We also find that the larger governments tend to be the better performing ones. The importance of (reasonably) exogenous historical factors in explaining the variation in government performance across countries sheds light on the economic, political, and cultural theories of institutions.
5,555 citations
Posted Content•
TL;DR: In this article, the authors present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify ultimate controlling shareholders of these firms, and suggest that the principal agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders.
Abstract: We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify 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 the Berle and Means image of ownership of the modern corporation. Rather, these firms are typically controlled by families or the State. Equity control by financial institutions or other widely-held corporations is less common. The controlling shareholders typically have the power over firms significantly in excess of their cash flow rights, primarily through the use of pyramids and participation in management. The results suggest that the principal agency problem in large corporations around the world is that of restricting expropriation of minority shareholders by the controlling shareholders, rather than that of restricting empire building by professional managers unaccountable to shareholders.
4,764 citations
TL;DR: In this article, the authors present a model of the effects of legal protection of minority shareholders and of cash-f low ownership by a controlling shareholder on the valuation of firms and test this model using a sample of 539 large firms from 27 wealthy economies.
Abstract: We present a model of the effects of legal protection of minority shareholders and of cash-f low ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cashf low ownership by the controlling shareholder. RECENT RESEARCH SUGGESTS THAT THE EXTENT of legal protection of investors in a country is an important determinant of the development of its financial markets. Where laws are protective of outside investors and well enforced, investors are willing to finance firms, and financial markets are both broader and more valuable. In contrast, where laws are unprotective of investors, the development of financial markets is stunted. Moreover, systematic differences among countries in the structure of laws and their enforcement, such as the historical origin of their laws, account for the differences in financial development ~La Porta et al. ~1997, 1998!!. How does better protection of outside investors ~both shareholders and creditors! promote financial market development? When their rights are better protected by the law, outside investors are willing to pay more for financial assets such as equity and debt. They pay more because they recognize that, with better legal protection, more of the firm’s profits would come back to them as interest or dividends as opposed to being expropriated by the entrepreneur who controls the firm. By limiting expropriation, the law raises the price that securities fetch in the marketplace. In turn, this enables more entrepreneurs to finance their investments externally, leading to the expansion of financial markets. Although the ultimate benefit of legal investor protection for financial development has now been well documented, the effect of protection on valuation has received less attention. In this paper, we present a theoretical and empirical analysis of this effect.
3,127 citations
TL;DR: In this article, the authors present new data on the regulation of entry of start-up firms in 85 countries, covering the number of procedures, official time, and official cost that a startup must bear before it can operate legally.
Abstract: We present new data on the regulation of entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.
2,811 citations
TL;DR: This article found that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose and also found that some of the instrumental variable techniques used in the literature are flawed.
Abstract: We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed. Basic OLS results, as well as a variety of additional evidence, suggest that (a) human capital is a more basic source of growth than are the institutions, (b) poor countries get out of poverty through good policies, often pursued by dictators, and (c) subsequently improve their political institutions.
2,543 citations
Cited by
More filters
Posted Content•
[...]
TL;DR: This paper examined legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries and found that common law countries generally have the best, and French civil law countries the worst, legal protections of investors.
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.
14,563 citations
[...]
TL;DR: In this article, the authors examined legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries and found 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.
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.
13,984 citations
TL;DR: The authors showed that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets than those with stronger investor protections.
Abstract: Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.
10,005 citations
TL;DR: In this paper, the authors use data on ownership structures of large corporations in 27 wealthy economies to identify the ultimate controlling shareholders of these firms, and they find that, except in economies with very good shareholder protection, relatively few firms are widely held, in contrast to Berle and Means's image of ownership of the modern corporation.
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.
8,270 citations