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on Law and Economics |
| By: | Yan-Leung Cheung; P. Raghavendra Rau; Aris Stouraitis |
| Abstract: | We analyze related party transactions between Chinese publicly listed firms and their stateowned enterprise (SOEs) shareholders to examine whether companies benefit from the presence of government shareholders and politically connected directors appointed by the government. We find that related party transactions between firms and their government shareholders seem to result in expropriation of the minority shareholders in firms controlled by local government SOEs or with a large proportion of local government affiliated directors on their board, and in provinces where local government bureaucrats are less likely to be prosecuted for misappropriation of state funds. On the other hand, firms controlled by the central government (or with a large proportion of central government affiliated directors) are benefited in their related party transactions with their central government SOEs. |
| Keywords: | Law and economics; Government ownership; China; State-Owned Enterprises (SOE); Related party transactions; Political connections |
| JEL: | G15 G34 K33 |
| Date: | 2008–02 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2008-11&r=law |
| By: | Joseph P.H. Fan; Jun Huang; Felix Oberholzer-Gee; Mengxin Zhao |
| Abstract: | We examine the diversification patterns of almost all publicly listed non-financial companies in China during the 2001 to 2005 period. More than 70 percent of the firms in our sample are diversified. We document that patterns of diversification strongly depend on firms’ political connections. Former local bureaucrats are more likely than other CEOs to enter multiple industries. This effect is particularly pronounced in state-owned enterprises (SOEs) that operate in weak institutional environments. These companies are particularly prone to entering low-growth, low-profitability, and unrelated industries. Consequently, the performance effects of diversification differ sharply across SOEs and private firms. While the latter earn a premium from diversifying their operations, SOEs do not. Our results are consistent with the view that provincial and local governments push Chinese SOEs into unattractive sectors of the economy and that politically connected CEOs use their relationships to build corporate empires. |
| Keywords: | Corporate Diversification; Institutions; China |
| JEL: | D23 G32 G38 K42 P26 P31 |
| Date: | 2007–06 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2008-3&r=law |
| By: | Nicola Gennaioli; Stefano Rossi |
| Abstract: | We study a demand and supply model of judicial discretion in corporate bankruptcy. On the supply side, we assume that bankruptcy courts may be biased for debtors or creditors, and subject to career concerns. On the demand side, we assume that debtors (and creditors) can engage in forum shopping at some cost. A key finding is that stronger creditor protection in reorganization improves judicial incentives to resolve financial distress efficiently, preventing a "race to the bottom" towards inefficient uses of judicial discretion. The comparative statics of our model shed light on a wealth of evidence on U.S. bankruptcy and yield novel predictions on how bankruptcy codes should affect firm-level outcomes. |
| Keywords: | Judicial Discretion, Corporate Bankruptcy. |
| JEL: | G33 K22 |
| Date: | 2007–12 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2008-5&r=law |
| By: | Nicola Gennaioli; Stefano Rossi |
| Abstract: | We study theoretically the possibility for the parties to efficiently resolve financial distress by contract as opposed to exclusively rely on state intervention. We characterize which financial contracts are optimal depending on investor protection against fraud, and how efficient is the resulting resolution of financial distress. We find that when investor protection is strong, issuing a convertible debt security to a large, secured creditor who has the exclusive right to reorganize or liquidate the firm yields the first best. Conversion of debt into equity upon default allows contracts to collateralize the whole firm to that creditor, not just certain physical assets, thereby inducing him to internalize the upside from efficient reorganization. Concentration of liquidation rights on such creditor avoids costly inter-creditor conflicts. When instead investor protection is weak, the only feasible debt structure has standard foreclosure rights, even if it induces over-liquidation. The normative implications are that lifting legal restrictions on floating charge financing, convertibles and concentration of liquidation rights, and increasing investor protection against fraud should improve the efficiency of resolutions of financial distress. |
| Keywords: | Corporate Bankruptcy, Creditor Protection, Financial Contracting |
| JEL: | G33 K22 |
| Date: | 2007–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:hitcei:2008-6&r=law |
| By: | Miguel St. Aubyn |
| Abstract: | This paper surveys the recent literature on law and order efficiency measurement. Law and order services include the services provided by the police, by the prison system and also by the judicial system (“the courts”). Key concepts prevalent in the efficiency measurement literature are presented. Decision making units most often found in the efficiency evaluation literature on law and order are charcterized. Inputs used by these units, and output measurement are examined and control and environment variables that explain or condition efficiency are dealt with. Methods of efficiency measurement are shortly presented. A synthesis of the main results and a short description of two important international databases on law and order are included. |
| Keywords: | efficiency measurement; law and economics; government expenditures. |
| JEL: | D24 K40 H59 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:ise:isegwp:wp192008&r=law |
| By: | Thomas Barnebeck Andersen (Department of Economics, University of Copenhagen); Jeanet Bentzen (Department of Economics, University of Copenhagen); Carl-Johan Dalgaard (Department of Economics, University of Copenhagen); Pablo Selaya (Department of Economics, University of Copenhagen) |
| Abstract: | We hypothesize that the spread of the Internet has reduced corruption, chiefly through two mechanisms. First, the Internet facilitates the dissemination of information about corrupt behavior, which raises the detection risks to shady bureaucrats and politicians. Second, the Internet has reduced the interface between bureaucrats and the public. Using cross-country data and data for the U.S. states, we test this hypothesis. Data spans the period during which the Internet has been in operation. In order to address the potential endogeneity problem, we develop a novel identification strategy for Internet diffusion. Digital equipment is highly sensitive to power disruption: it leads to equipment failure and damage. Even very short disruptions (less than 1/60th of a second) can have such consequences. Accordingly, more frequent power failures will increase the user cost of IT capital; either directly, through depreciation, or indirectly, through the costs of protective devises. Ceteris paribus, we expect that higher IT user costs will lower the speed of Internet diffusion. A natural phenomenon which causes a major part of annual power disruptions globally is lightning activity. Lightning therefore provides exogenous variation in the user cost of IT capital. Based on global satellite data from the U.S. National Aeronautics and Space Administration (NASA), we construct lightning density data for a large cross section of countries and for the U.S. states. We demonstrate that the lightning density variable is a strong instrument for changes in Internet penetration; and we proceed to show that the spread of the Internet has reduced the extent of corruption across the globe and across the U.S. The size of the impact is economically and statistically significant. |
| Keywords: | public corruption; internet; information |
| JEL: | K4 O1 H0 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:kud:kuiedp:0811&r=law |
| By: | Dan Bogart (Department of Economics, University of California-Irvine) |
| Abstract: | Prominent theories link political changes in seventeenth century England with greater security of property rights and less regulation. This paper informs these theories by studying the supply and enforcement of monopoly rights to improve roads and rivers between 1600 and 1750. The evidence shows that the King, Commons, and Lords all supplied improvement rights before the Glorious Revolution of 1688. Afterwards the Commons gained a monopoly over the initiation of rights and became increasingly effective. Lastly the evidence shows that Parliament and the King voided or diminished improvement rights, but such instances were less frequent and less arbitrary after 1688. |
| Keywords: | Property rights; Commitment; Competition; Infrastructure Investment; Pre-Industrial England |
| JEL: | K23 N43 O43 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:irv:wpaper:070817&r=law |
| By: | Amegashie, J. Atsu |
| Abstract: | History is replete with overt discrimination on the basis of race, gender, age, citizenship, ethnicity, marital status, academic performance, health status, volume of market transactions, religion, sexual orientation, etc. However, these forms of discrimination are not equally tolerable. For example, discrimination based on immutable or prohibitively unalterable characteristics such as race, gender, or ethnicity is much less acceptable. Why? I develop a simple rent-seeking model of conflict which is driven by either racial (gender or ethnic) discrimination or generational discrimination (i.e., young versus old). When the conflicts are mutually exclusive, I find that racial discrimination is socially intolerable for a much wider range of parameter values relative to generational discrimination. When they are not mutually exclusive, I find that racial discrimination can be socially intolerable while generational discrimination is socially tolerable. The converse is not true. My results are not driven by a stronger intrinsic aversion to discrimination on the basis of immutable characteristics. I am able to explain why some forms of discrimination (e.g., racism) are much less tolerable than other forms of discrimination (e.g., age discrimination) without making any value judgements about either form of discrimination. |
| Keywords: | conflict; contest; discrimination; race; generation; rent-seeking. |
| JEL: | D72 K4 |
| Date: | 2008–05–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8543&r=law |
| By: | Michael, Cayley |
| Abstract: | Within the field of social capital study, concerns have been expressed that deviations from a fundamental understanding that social capital is captured from embedded resources in social networks may reduce the intellectual enterprise to a catch all fad (Lin, Cook, Burt, 1999). This paper is an argument that sometime in 2004, when broadband internet connections became more prevalent than those of less capacity, individuals became empowered as our most intense form of media. Scaled up effects of the Individual as Medium including: • increased information flow, • exertion of influence, • expansion of social credentials and reinforcement of identity and recognition, are consistent with a network theory of social capital. Corporations are exposed to new risks and opportunities due to these scaled up forms of social capital and they require new methods to manage them. Social Capital Value Add is introduced as such a new method, designed to link the pioneering intellectual enterprise of social capital to value based management and the priorities of marketers. A plausible SCVA valuation method is proposed to demonstrate how these links may be articulated in a way that is meaningful for investors and corporate managers. |
| Keywords: | "social capital"; "corporate value"; "Web 2.0"; "corporate valuation"; "social media"; "memetic brand"; brand |
| JEL: | M1 Z13 G3 |
| Date: | 2008–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8641&r=law |