Working Paper: CEPR ID: DP2682
Authors: Marco Pagano; Paolo Volpin
Abstract: The Paper analyses the political decision that determines the degree of investor protection. We show that entrepreneurs and workers can strike a political agreement by which low investor protection is exchanged for high employment protection. This ?corporatist? agreement is feasible if the political system favours the formation of coalition governments. In contrast, ?non-corporatist? countries will feature high investor protection and low employment protection. The model also shows that the more diffused is share ownership, the higher the chosen degree of shareholder protection. Finally, the model predicts the frequency of mergers and acquisitions to be negatively correlated with employment protection. These predictions are shown to be consistent with OECD evidence.
Keywords: acquisitions; corporate governance; employment legislation; mergers; political economy; shareholder protection
JEL Codes: G34; K22; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political decisions regarding investor protection (G18) | Degree of investor protection (G38) |
| Entrepreneurs' preferences for low investor protection (L26) | Degree of investor protection (G38) |
| Rentiers and workers' preferences for high investor protection (J26) | Degree of investor protection (G38) |
| Political agreement between entrepreneurs and workers (J54) | Employment protection (J68) |
| Political system's structure (H11) | Degree of investor protection (G38) |
| Political system's structure (H11) | Employment protection (J68) |
| High employment protection (J68) | Low investor protection (G24) |
| Equity ownership diffusion (G32) | Support for shareholder rights (G38) |
| Equity ownership diffusion (G32) | Employment protections (J68) |
| Employment security (J65) | Corporate restructuring activities (G34) |