Investor Protection and Equity Markets
32 Pages Posted: 12 Oct 2000
Date Written: October 2000
We present a simple model of an entrepreneur going public in an environement with poor legal protection of outside shareholders. The model incorporates elements of Becker's (1968) "crime and punishment" framework into a corporate finance environment of Jensen and Meckling (1976). We examine the entrepreneur's decision and the market equilibrium. The model is consistent with a number of empirical regularities concerning the relationship between investor protection and corporate finance.
JEL Classification: G31, G32
Suggested Citation: Suggested Citation