The Political Economy of Corporate Governance

Pagano, Marco; Volpin, Paolo F.

doi:10.2139/ssrn.209314

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The Political Economy of Corporate Governance

35 Pages Posted: 15 Mar 2000

See all articles by Marco Pagano

Marco Pagano

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF); Einaudi Institute for Economics and Finance (EIEF); Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Paolo F. Volpin

Drexel University - Bennett S. LeBow College of Business; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); City University London - Faculty of Finance

There are 2 versions of this paper

Date Written: October 1999

Abstract

The paper analyzes the political decision that determines the degree of investor protection. We show that, in some circumstances, entrepreneurs and workers agree to trade low investor protection for high employment protection. The feasibility of this "corporatist" agreement depends on the distribution of wealth and on technological factors. Otherwise, a "non-corporatist" outcome will occur, featuring high investor protection and low employment protection. Therefore, our main prediction is that employment and investor protection is negatively correlated across countries. The model also predicts that the frequency of mergers and acquisitions is negatively correlated with employment protection. Both predictions are consistent with OECD evidence.

JEL Classification: G34, K22, K42

Suggested Citation: Suggested Citation

Pagano, Marco and Volpin, Paolo F., The Political Economy of Corporate Governance (October 1999). Available at SSRN: https://ssrn.com/abstract=209314 or http://dx.doi.org/10.2139/ssrn.209314