New Economics Papers
on Law and Economics
Issue of 2005‒03‒13
seven papers chosen by
Jeong-Joon Lee, Towson University

  1. Competing or Colluding in a Stochastic Framework By Adriana Breccia; Hector Salgado-Banda
  2. Managing migration: the Brazilian case By Eduardo L. G. Rios-Neto
  3. Private Benefits of Control, Ownership, and the Cross-Listing Decision By Craig Doidge; G. Andrew Karolyi; Karl V. Lins; Darius P. Miller; Rene M. Stulz
  4. The Politics of Institutional Learning and Creation: Bank Crises and Supervision in East Central Europe By Gerald A. McDermott
  6. How Does Law Affect Finance? An Empirical Examination of Tunneling in an Emerging Market By Vladimir Atanasov; Conrad S. Ciccotello; Stanley B. Gyoshev
  7. Quality of Institutions, Credit Markets and Bankruptcy By Christa Hainz

  1. By: Adriana Breccia; Hector Salgado-Banda
    Abstract: This paper addresses the issue of anticompetitive and collusive practices in a continuous-time real option framework. We extend the symmetrical duopoly under uncertainty model by Dixit and Pindyck (1994), by granting a patent to the first innovator that files an application. The patent-investment race model is used to focus on long-term collusive agreements signed under a cooperative bargaining structure. The contributions are as follows. First, we show that, in a stochastic framework, competition always leads to different forms of inefficiency. Second, it is proved that, when entrepreneurs can sign long-term contracts via cooperative bargaining, collusion is always beneficial ex-ante since inefficiency disappears. Third, we show that whilst collusion always delays innovation, it does not necessarily delay competition. Depending on a number of economic, as well as firm-specific factors, collusion can actually accelerate competition.
    Keywords: Bargaining, Collusion, Competition, Geometric Brownian Motion,Nash Demand Game, Stackelberg Game
    JEL: C7 D8 K4 L13
    Date: 2005–01
  2. By: Eduardo L. G. Rios-Neto (Cedeplar-UFMG)
    Abstract: The objective of this paper is to present the Brazilian migration experience and its relationship with migration management. The article is divided into three parts. First, it reviews some basic facts regarding Brazilian immigration and emigration processes. Second, it focuses on some policy and legal issues related to migration. Finally, it addresses five issues regarding migration management in Brazil.
    Keywords: international migration, immigration, emigration, migration management, migration policies, migration laws, Brazil
    JEL: F22 K49
    Date: 2005–02
  3. By: Craig Doidge; G. Andrew Karolyi; Karl V. Lins; Darius P. Miller; Rene M. Stulz
    Abstract: This paper investigates how a foreign firm%u2019s decision to cross-list its shares in the U.S. is related to the concentration of the ownership of its cash flow rights and of its control rights. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to list their firm%u2019s shares in the U.S. because the higher standards for transparency and disclosure, as well as the increased monitoring associated with such listings, limit their ability to extract private benefits. We offer evidence that confirms this hypothesis using data on more than 4,000 firms from 31 countries. Using logistic regression analysis, we show that the control rights held by controlling shareholders, as well as the difference between their control rights and their cash flow rights are significantly and negatively related to the existence of a U.S. listing. In addition, we employ duration analysis using a Cox proportional-hazard model to show that the probability of listing in a given year from 1995 to 2001, conditional on not yet having listed, is significantly lower for firms whose managers have high levels of control and for firms whose controlling shareholder owns more control rights than cash flow rights.
    JEL: G15 G34 K00 P51
    Date: 2005–03
  4. By: Gerald A. McDermott
    Abstract: This article examines the political conditions shaping the creation of new institutional capabilities. It analyzes bank sector reforms in the 1990s in three leading postcommunist democracies – Hungary, Poland, and the Czech Republic. It shows how different political approaches to economic transformation can facilitate or hinder the ability of relevant public and private actors to experiment and learn their new roles. With its emphasis on insulating power and rapidly implementing self-enforcing economic incentives, the “depoliticization” approach creates few changes in bank behavior and, indeed impedes investment in new capabilities at the bank and supervisory levels. The “deliberative restructuring” approach fostered innovative, costeffective monitoring structures for recapitalization, a strong supervisory system, and a stable, expanding banking sector.
    Keywords: Institutional change, transition economies, bank crises, bank supervision, learn
    JEL: G28 F02 P26 K23
    Date: 2004–11–01
  5. By: Laura Nyantung Beny
    Abstract: Despite the longstanding insider trading debate, there is little empirical research on insider trading laws, especially in a comparative context. The article attempts to fill that gap. I find that countries with more prohibitive insider trading laws have more diffuse equity ownership, more accurate stock prices, and more liquid stock markets. These findings are generally robust to controlling for measures of disclosure and enforceability and suggest that formal insider trading laws (especially their deterrent components) matter to stock market development. The article suggests further avenues of empirical research on the specific mechanisms through which insider trading laws might matter and the political economy of their adoption.
    Keywords: Insider trading law, Market efficiency, Ownership structure, Law and finance, Comparative capital markets
    JEL: K22 G14 G15 G18 G32
    Date: 2005–01–01
  6. By: Vladimir Atanasov; Conrad S. Ciccotello; Stanley B. Gyoshev
    Abstract: This paper documents that law affects finance in emerging markets through the methods used by controlling shareholders to “tunnel” wealth out of the firm. We find that Bulgarian securities law enabled financial tunneling via dilution and freeze-out tender offers. During the period 1999- 2001, about two-thirds of the 1,040 firms on the Bulgarian Stock Exchange were delisted. Freeze-out tender offers for minority shares averaged about 25% of the shares’ intrinsic value. Bulgarian securities law changes in 2002 made financial tunneling more costly for controlling shareholders. Subsequent increases in stock market valuations and liquidity suggest that controlling shareholders have shifted from financial tunneling to less value-destroying methods, such as transfer pricing, to extract wealth from firms.
    Keywords: Tunneling, freeze-out, controlling shareholders, appraisal rights, preemptive rights
    JEL: G34 K22
    Date: 2005–01–01
  7. By: Christa Hainz
    Abstract: The number of firm bankruptcies is surprisingly low in economies with poor institutions. We study a model of bank-firm relationship and show that the bank’s decision to liquidate bad firms has two opposing effects. First, the bank receives a payoff if a firm is liquidated. Second, it loses the rent from incumbent customers that is due to its informational advantage. We show that institutions must improve significantly in order to yield a stable equilibrium in which the optimal number of firms is liquidated. There is also a range where improving institutions may decrease the number of bad firms liquidated.
    Keywords: Credit markets, institutions, bank competition, information sharing, bankruptcy, relationship banking.
    JEL: G21 G33 K10
    Date: 2005–02–01

This issue is ©2005 by Jeong-Joon Lee. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.