The Political Economy of Investor Protection
46 Pages Posted: 4 Jan 2007
Date Written: December 2006
Why do some countries suffer from backward financial institutions and weak corporate governance rules? We show that, even if, overall, the economy would benefit corporate governance reforms, not all the agents would stand to gain from the improvement. In particular, entrepreneurs and firms that are already well-established fear better rules, which would allow the financing of new firms and enhance competition. As a consequence, industry incumbents will try to influence the political process to block the reforms. If national political institutions are weak, these efforts are likely be successful.
Keywords: Corporate Governance, Entry, Financial Development, Investor Protection, Politics
JEL Classification: G30, G38, K22, K42, L11, O16, P16
Suggested Citation: Suggested Citation