Public Information and Inefficient Investment

In a general equilibrium economy with uninsurable aggregate liquidity shocks, we show that public information may trigger allocative inefficiency and liquidity crises. Entrepreneurs do not internalize the negative impact of their investment decisions on the equilibrium risk of liquidity shortage. A more informative public signal decreases the risk of a liquidity shock, but increases the risk of capital rationing conditional on a liquidity shock. In equilibrium, information quality has a non-monotonic effect on expected returns on investment and social welfare. An increase in the quality of public information has redistributive effects on welfare as entrepreneurs gain and financiers lose. Investment restrictions and targeted disclosure of information achieve constrained efficiency as competitive market equilibrium

Does family control matter? International evidence from the 2008-2009 financial crisis

We study whether and how family control affects valuation and corporate decisions during the 2008–2009 financial crisis using a sample of more than 8,500 firms from 35 countries. We find that family-controlled firms underperform significantly, they cut investment more relative to other firms, and these investment cuts are associated with greater underperformance. Further, we find that within family groups liquidity shocks are passed on through investment cuts across the group. Our evidence is consistent with families taking actions to increase the likelihood that the firms under their control and their control benefits survive the crisis, at the expense of outside shareholders

Governance with poor investor protection: Evidence from top executive turnover in Italy

Abstract This paper analyzes executive turnover and firm valuation in Italy, a country that features all the characteristics of the most common governance structure around the world, as described by La Porta, et al. (1999): low legal protection for investors, firms with large controlling shareholders and pyramidal groups. The main findings are that turnover is significantly lower and unaffected by performance when the controlling shareholder of the firm is also a top executive in the firm, while it is more sensitive to performance when control is, to some extent, contestable and when the controlling shareholder owns a larger fraction of the firm's cash-flow rights. The results on valuation are the mirror image of those on turnover: the firm's Q is lower for companies with the controlling shareholder as a top executive, larger when a voting syndicate controls the firm, and increases with the fraction of cash-flow rights owned by the controlling shareholder. JEL classification: G34, J63, L14

Cross-country determinants of mergers and acquisitions

We study the determinants of mergers and acquisitions around the world by focusing on differences in laws and regulation across countries. We find that the volume of M&A activity is significantly larger in countries with better accounting standards and stronger shareholder protection. The probability of an all-cash bid decreases with the level of shareholder protection in the acquirer country. In cross-border deals, targets are typically from countries with poorer investor protection than their acquirers’ countries, suggesting that cross-border transactions play a governance role by improving the degree of investor protection within target firms

The Political Economy of Corporate Governance

We analyze the political determinants of investor and employment protection. Our model predicts that proportional electoral systems are conducive to weaker investor protection and stronger employment protection than majoritarian systems. This prediction is consistent with international panel data evidence. The proportionality of the voting system is significantly and negatively correlated with shareholder protection in a panel of 45 countries, and positively correlated with employment protection in a panel of 21 OECD countries. Other political variables also affect regulatory outcomes, especially for the labor market. The origin of the legal system has some additional explanatory power only for employment protection.