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Abstract:
We analyze the impact of corporate governance institutions and ownership structures on company returns on investment by using a sample of more than 19,000 companies from 61 countries across the world. We show that the origin of a country's legal system proves to be the most important determinants of investment performance. Companies in countries with English-origin legal systems earn returns on investment that are at least as large as their costs of capital. Companies in all countries with civil law systems earn on average returns on investment below their costs of capital. Furthermore, differences in investment performance related to a country's legal system dominate differences related to ownership structure. We also present considerable evidence that managerial entrenchment worsens a company's investment performance.

Abstract:
We analyze the impact of corporate governance institutions and ownership structures on company returns on investment by using a sample of more than 19,000 companies from 61 countries across the world. We show that the origin of a country's legal system proves to be the most important. Companies in countries with English-origin legal systems earn returns on investment that are at least as large as their costs of capital. Companies in all countries with civil law systems earn on average returns on investment below their costs of capital. Furthermore, differences in investment performance related to a country's legal system dominate differences related to ownership structure. We also present considerable evidence that managerial entrenchment worsens a company's investment performance.

corporate governance, external capital markets, ownership structure, returns on investment

Abstract:
One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers' shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses.

Mergers, merger waves, tender offers

Abstract:
Over the last 25 years the term "corporate governance" has entered the lexicon of economists and other students of business. This development has been accompanied by growing interest in differences in institutional structures - like corporate governance systems - across countries. Among the many questions regarding the effects of corporate governance systems that have been examined, one of the most important has been to measure the effects of corporate governance systems on corporate performance somehow measured, or more broadly the economic performance of countries. This paper reviews some of this evidence and takes up the questions of which system is "best," and whether this superiority is likely to lead to a convergence of corporate governance structures over time. With a few exceptions, most studies of the effects of corporate governance institutions treat them as exogenous. This paper also discusses the historical and political determinants of corporate governance institutions.

corporate governance, investment performance

Abstract:
This article makes two important contributions to the literature on the incentive effects of insider ownership. First, it presents a clean method for separating the positive wealth effect of insider ownership from the negative entrenchment effect, which can be applied to samples of companies from the US and any other country. Second, it measures the effects of insider ownership using a measure of firm performance, namely a marginal q, which ensures that the causal relationship estimated runs from ownership to performance. The article applies this method to a large sample of publicly listed firms from the Anglo-Saxon and Civil law traditions and confirms that managerial entrenchment has an unambiguous negative effect on firm performance as measured by both Tobin's (average) q and our marginal q, and that the wealth effect of insider ownership is unambiguously positive for both measures. We also test for the effects of ownership concentration for other categories of owners and find that while institutional ownership improves the performance in the USA, financial institutions have a negative impact in other Anglo-Saxon countries and in Europe.

Insider ownership, Tobin's q, marginal q, performance, international comparison

Abstract:
This paper employs the methodology of "constitutional political economy" to examine the definition of citizenship, and the delineation of the rights that accompany citizenship. The concepts developed are then applied to the question of how rights and citizenship should be defined in the European Union. The answer to this question is shown to depend on whether the Union is organized as a federation or a confederation. The concepts developed are then used to critique the Charter of Fundamental Rights of the European Union, and to question whether this Charter should be made a part of a new European Union constitution.

Abstract:
Considerable concern has been expressed in recent years about declines in voter participation rates in the United States and in several other major democratic countries. Some feel low participation rates introduce a "class bias" into the political process and thereby worsen the outcomes from it. Little empirical work exists, however, that measures the effects of lower participation on the welfare of a country. This paper begins to fill this void. It presents cross-national evidence that high levels of democratic participation are associated with more equal distributions of income. The paper's results also imply, however, that this reduction in income inequality comes at a cost. High participation rates are related to larger government sectors which in turn lead to slower economic growth. We also present evidence of the "capture" of government by upper income groups in Latin and Central American countries.

Abstract:
We examine the effects of mergers on the returns to acquiring companies' shareholders for a large sample of companies from both Anglo-Saxon and non-Anglo-Saxon countries over the 1980s and 1990s. With the important exception of Japan, we find similar patterns of returns across both types of countries. For a sample of 9,733 acquiring companies the mean percentage gain over a short window of 21 days is 0.6 percent. This picture changes dramatically as the market has more time to evaluate the mergers and/or the acquiring firms. After three years, acquirers' shareholders in the United States and continental Europe lost on average 19 percent of their market value compared to a portfolio of non-merging firms in their size deciles and their two-digit industry, in Canada, Australia and New Zealand roughly 16 percent, and in the four Scandinavian countries almost 15 percent. Further analysis indicates that some mergers are consistent with the hypothesis that mergers generate synergies, but that a majority of mergers in Continental Europe are explained by the managerial discretion and/or hubris hypothesis. Our findings also suggest that that corporate governance institutions in the United States and the other Anglo-Saxon countries lead to better investment performance than in continental Europe, when one confines one's attention to mergers.

Corporate Governance, Mergers, Acquisitions, Determinants of Mergers, Effects of Mergers, International Comparison

Abstract:
We use investment-cash flow regressions to show that both asymmetric-information and agency problems are more severe in Continental Europe than in the Anglo-Saxon countries leading to too little investment by firms with attractive investment opportunities and too much by those with poor investment opportunities. Legal systems, accounting standards, and ownership structure systematically affect the investment-cash flow sensitivity. Cash flow coefficients are largest for family-controlled firms in Europe.

Investment, corporate governance, ownership structure, international comparison

Abstract:
One of the most conspicuous features of mergers is that they come in waves that are correlated with increases in share prices and price/earnings ratios. We use a natural way to discriminate between pure stock market influences on firm decisions and other influences by examining merger patterns for both listed and unlisted firms. If "real" changes in the economy drive merger waves, as some neoclassical theories of mergers predict, both listed and unlisted firms should experience waves. We find significant differences between listed and unlisted firms as predicted by behavioral theories of merger waves.

Merger waves, listed versus non-listed firms, managerial discretion, overvaluation

Abstract:
We shed light on three conundrums in the literature on investment: why investments out of different sources of finance earn different returns, why different studies report different patterns of returns across sources of finance, and why companies in developing countries make greater use of external equity capital to finance their investment than do companies in developed countries. We show that the strength of corporate governance systems affects the preferred source of financing, which in turn helps to explain why investments financed in different ways exhibit significantly different rates of return. We find considerable differences between developed and developing countries in the effectiveness of corporate governance systems in aligning managers and shareholders' interests.

Abstract:
Books reviewed:

Frederic E. Sautet, An Entrpreneurial Theory of the Firm

David M. Newbery, Privatization, Restructuring and Regulation of Network Utilities

G. C. Peden, The Treasury and British Public Policy, 1906-59

Karl-Heinz Paque', Structural Unemployment and Real Wage Rigidity in Germany

Abstract:
Almost all firms start out as small, owner-managed companies. Many stay that way throughout their lives. Some create attractive investment opportunities, however, that will allow them to grow rapidly and become leading companies in their country. These firms typically do not have sufficient internal funds flows and must turn to external sources of finance. Among these is the issuance of equity. Once a firm sells shares, however, the cost of the managers engaging in on-the-job consumption falls, and they can be expected to do so at the expense of their shareholders. Knowing this, potential shareholders may be unwilling to purchase a new offering of a young firms shares, and the firm with attractive investment opportunities is unable to finance them. Strong corporate governance institutions help to protect shareholders from the discretionary use of their firms resources. This paper reviews the case for having strong corporate governance institutions to facilitate the creation of thick equity markets in the context of developing countries in emerging markets, and examines the case for relying on alternative sources of capital including the state.

Abstract:
One of the most conspicuous features of mergers is that they come in waves, and that these waves are correlated with increases in share prices and price/earnings ratios. We test four hypotheses that have been advanced to explain merger waves: the industry shocks, q-, overvaluation and managerial discretion hypotheses. The first two are neoclassical in that they assume that managers maximize profits, mergers create wealth, and the capital market is efficient. The last two, behavioral hypotheses relax these assumptions in different ways. We test the four hypotheses by estimating models of the amounts of assets acquired by firms, models that identify the characteristics of targets, and estimates of the returns to acquirers' shareholders. Although some support is found for each of the four hypotheses, most of the evidence favors the two behavioral hypotheses.

Mergers waves, managerial discretion, overvaluation

Abstract:
The continuing integration of Europe, the increasing mobility of its citizens and enterprises, and the globalization of the world economy place increasing pressure on Europe's redistributive regulations, taxes, and subsidies. The most attractive response for many European governments is to reduce the options of its citizens through tax and regulation harmonization, thereby avoiding the politically costly steps of taking away the subsidies and privileges to which the politically most powerful groups are accustomed. The danger Europe faces by responding to the pressure from globalization by tax harmonization, however, is that it preserves the resulting inefficiencies, and becomes increasingly unattractive for businesses to locate, people to work, and eventually for people to live. This paper examines the cases for a redistributive state and an allocative (efficiency) state from the perspective of constitutional political economy. A constitutional democracy is described in which the state engages in those sorts of redistribution that all people favor, and provides only those goods, services and regulations that make all citizens better off.