Investor Protection and Equity Markets
Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)
Harvard Institute of Economic Research Paper No. 1906
We present a simple model of an entrepreneur going public in an environment 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.
Number of Pages in PDF File: 35
Date posted: October 29, 2000