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The Law and Economics of Self-Dealing

Simeon Djankov
Ministry of Finance

Rafael La Porta
Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Florencio Lopez de Silanes
EDHEC Business School; National Bureau of Economic Research (NBER); Tinbergen Institute

Andrei Shleifer
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

December 2005

Abstract:
We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval, and litigation, governing a specific self-dealing transaction. This theoretically-grounded index predicts a variety of stock market outcomes, and generally works better than the commonly used index of anti-director rights.

Keywords: legal protection, disclosure, stock market

JEL Classifications: G3, G38, K22

Working Paper Series

Date posted: December 07, 2005 ; Last revised: February 06, 2006

Suggested Citation

Djankov, Simeon, Lopez de Silanes, Florencio, La Porta, Rafael and Shleifer, Andrei, The Law and Economics of Self-Dealing (December 2005). Available at SSRN: http://ssrn.com/abstract=864645

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Contact Information

Andrei Shleifer (Contact Author) Harvard University - Department of Economics ( email ) Littauer Center Cambridge, MA 02138 United States 617-495-5046 (Phone) 617-496-1708 (Fax) HOME PAGE: http://www.economics.harvard.edu/~ashleife/
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
European Corporate Governance Institute (ECGI) c/o ECARES ULB CP 114 B-1050 Brussels Belgium HOME PAGE: http://www.ecgi.org
Simeon Djankov Ministry of Finance ( email ) Rakovski Avenue 102 Sofia 1040 Bulgaria
Rafael La Porta Tuck School of Business at Dartmouth ( email ) Hanover, NH 03755 United States
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
Florencio Lopez de Silanes EDHEC Business School ( email ) 393, Promenade des Anglais BP 3116 Nice 06202 France +33 (0) 4 93 18 78 07 (Phone) +33 (0) 4 93 18 78 41 (Fax)
National Bureau of Economic Research (NBER) 1050 Massachusetts Avenue Cambridge, MA 02138 United States
Tinbergen Institute ( email ) Burg. Oudlaan 50 Rotterdam 3062 PA Netherlands