The Political Economy of Corporate Governance
Paolo F. Volpin
City University London - Faculty of Finance; London Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
American Economic Review, Vol. 95, No. 4, September 2005
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.
JEL Classification: G34, K22, K42Accepted Paper Series
Date posted: March 29, 2006
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