Rodolfo Debenedetti Lecture

Transcription

1 Rodolfo Debenedetti Lecture Andrei Shleifer March 2005

2 Legal Origin Distribution Legal Origins = English = French = German = Scandinavian = Socialist

3 Institution Procedural Formalism Outcomes Time to evict nonpaying tenan Time to collect a bounced che Judicial Independence Property rights gal igin Regulation of Entry Employment Laws Collective Relations Laws Social Security Laws Company Laws Securities Laws Bankruptcy Law Government Ownership of Banks Corruption Unofficial economy Participation rates Unemployment Stock Market Development Firm Valuation Ownership Structure Private Credit Interest Rate Spread

4 Variable: LEGAL FORMALISM (Check Collection) Description: The index measures substantive and procedural statutory intervention in judicial cases at lower-level city trial courts, and is formed by adding up the following indices: (i) professionals versus laymen; (ii) written versus oral arguments; (iii) legal justification; (iv) statutory regulation of evidence; (v) control of superior review; (vi) engagement formalities; and (vii) independent procedural actions. The index ranges from zero to seven where seven means a higher level of control or intervention in the judicial process. Source: Djankov et al, Courts, Quarterly Journal of Economics (2003). Legal Formalism (Check) Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 109 World mean: 3.53

5 Variable: LEGAL FORMALISM (Eviction) Description: The index measures substantive and procedural statutory intervention in judicial cases at lower-level city trail courts, and is formed by adding up the following indices: (i) professionals versus laymen; (ii) written versus oral arguments; (iii) legal justification; (iv) statutory regulation of evidence; (v) control of superior review; (vi) engagement formalities; and (vii) independent procedural actions. The index ranges from zero to seven where seven means a higher level of control or intervention in the judicial process. Source: Djankov et al, Courts, Quarterly Journal of Economics (2003). Legal Formalism (Eviction) Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 109 World mean: 3.58

6 Variable: JUDICIAL INDEPENDENCE Description: Judicial independence is computed as the normalized sum of: (i) the tenure of Supreme Court judges; (ii) the tenure of administrative Court judges; and (iii) the case law variable. Source: La Porta et al, Judicial Checks and Balances, Journal of Political Economy (2004). Judicial Independence Means by Legal Origin British Origin French Origin German Origin Scan. Origin Total countries represented: 69 World mean: 0.75

7 Variable: REGULATION OF ENTRY Description: The number of different procedures that a start-up has to comply with in order to obtain a legal status, i.e., to start operating as a legal entity. Source: Djankov et al, The Regulation of Entry, Quarterly Journal of Economics (2002). Regulation of Entry Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin 4.5 Total countries represented: 85 World mean: 10.48

8 REGULATION OF LABOR Employment laws Alternative employment contracts Conditions of employment; cost of increasing hours worked Cost of firing workers Dismissal procedures Industrial (collective) relations laws Collective bargaining Worker participation in management Collective disputes Social security laws Old age, disability and death benefits Sickness and health benefits Unemployment benefits

9 Variable: EMPLOYMENT LAWS INDEX Description: Measures the protection of labor through employment laws as the average of: (1) Alternative employment contracts; (2) Cost of increasing hours worked; (3) Cost of firing workers; and (4) Dismissal procedures. Source: Botero et al, The Regulation of Labor, Quarterly Journal of Economics (2004). Regulation of Labor Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 85 World mean: 0.49

10 Variable: COLLECTIVE RELATIONS LAWS INDEX Description: Measures the protection of collective relations laws as the average of: (1) Labor union power and (2) Collective disputes. Source: Botero et al, The Regulation of Labor, Quarterly Journal of Economics (2004). Collective Relations Laws Index Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 85 World mean: 0.45

11 Variable: SOCIAL SECURITY LAWS INDEX Description: Measures social security benefits as the average of: (1) Old age, disability and death benefits; (2) Sickness and health benefits; and (3) Unemployment benefits. Source: Botero et al, The Regulation of Labor, Quarterly Journal of Economics (2004). Social Security Laws Index Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 85 World mean: 0.57

12 Variable: DRAFT Description: Fraction of years 1985, 1990, and 1995 drafting. Source: Mulligan and Shleifer, Conscription as Regulation, American Law and Economics Review (2005). Draft Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 162 World mean: 0.638

13 Outcome Variables ration of cedure The total estimated duration in calendar days of the procedure. It equals the sum of: (i) duration until completion of service of process, (ii) duration of trial, and (iii) duration of enforcement. curity of perty rights The total estimated duration in calendar days of the procedure. It equals the sum of: (i) duration until completion of service of process, (ii) duration of trial, and (iii) duration of enforcement. official onomy rruption Size of the shadow economy as a percentage of GDP (varying time periods). ICR s assessment of the corruption in government. Lower scores indicate high government officials are likely to demand special payments and illegal payments are generally expected throughout lower levels of government in the form of bribes connected with import and export licenses, exchange controls, tax assessment, policy protection, or loans. Average of the months of April and October of the monthly index between 1982 and Scale from 0 to 10, with lower scores for higher levels of corruption. le labor force rticipation Male participation rate as a percentage of the total male population aged 15 to 64. Based on population censuses or household surveys. employment of les (20-24) Unemployed males aged 20 to 24 as a percentage of the total active male population of the same age during

14 Formalism in check collection determines duration of procedure Log of Duration HKG BLZ ITA LBN MLT ARE CAN MOZ COL AUT LKA PRT AUS PAK HUN CYP URY KWT BGRBHR ISR HRV GRC SEN EST ECU FIN CSE ISLMEX KEN CHE TTO JAM TWN NGA ZMB ZWE VIRTHA UKR SWE IDN GEO BRA EGY FRA DOM LUXROU HND CHN LVA MAR CHL RUS DEU BMU GRD IRL ZAF UGA GHA MYS MWI TUR BRBVNM IND GBR BEL CYM] CIV JOR LTU PHL TZA NAM KAZ DNK ANT NOR MCO KOR BWA NZL JPN USA SLV SGP NLD SWZ VCT TUN POL SVN Formalism coef = , (robust) se = , t = 6.19 BOL PER CRI ARG GTMPRY PAN ESP VEN

15 Formalism in eviction determines duration of procedure Log of Duration NZL ARE BMU POL SVN ITA MLT COL CAN AUT MOZ LKA PRT BOL AUS HUN CYP BHR HRV PAK URY BGR KWT CRI SEN ISR GRC ECUEST FIN CSE ISL MEX KEN TTOJAM NGA TWNUKR ZMB ZWEVIR EGY SWE IDN LUX CHE CHN RUS GEO LVA FRA THA DOM ROU HND BRA MAR CHLPRY DEU JOR BRB GBR VNM TZA GRD BEL IRL CIV LTU PHL ESP CYM] UGA MWI GHA MYS IND TUR NAM KAZ ANT MCO KOR ZAFDNK NOR BWA BLZ HKG JPN USA SLV SGP NLD SWZ VCT LBN PER VEN ARG GTM PAN TUN Formalism coef = , (robust) se = , t = 3.94

16 Judicial Independence determines security of property rights Security of Property Rights CHN VNM HND COL FRA PAN VEN MEX THA CHL KOR KWT AUT NLD BEL JPN CHE GRC PRT EGY ESP MOZ ITA LBN BRA UGA PAK PHL NZL JOR NOR DNK USA ISL DEU FIN SGP GBR IRL AUS CAN NGA MYS TUR IND GHA KEN ZMB IDN ZWE ARG ISRPER SWE ZAF Judicial Independence coef = , (robust) se = , t = 5.62

17 Regulation of entry determines corruption Corrpution CAN AUS NZL ZWEDNK IRLZMB ZAF TZACHN MOZ FIN NOR MYSKEN SWE NLD BGR ISR LKA GBR HUN CHEPOL SEN IND VNM FRA GHA UGA BEL DEU AUT JORECU USA NGA SGPSVN THA ROU PRT JPN BRA ESP TUN ARG PAK PER TWNMARTUR COL GRC ARG EGY CHL VEN IDNLBN URY MEX PHL BOL JAM ITA PAN Log Number of Procedures coef = , (robust) se = , t = -2.94

18 Regulation of entry determines unofficial economy Unofficial Economy AUS CAN NZL IRL DNK PAN PER MOZ SEN ISR TUN MYS URY PHL MEX NGA GEO THA KAZSVN BEL KOR BRA GRC ITA HRVESP NOR HUN USA LKA FIN SWE SGP CHL MAR VEN GBR TWN CHE NLD DEUJPN AUTPRTARG RUS FRA LVA IDN LTU UKR COL POL PAK JAM ARG BGR ECU TUR ROU IND EGY TZA ZAF Log Number of Procedures coef = , (robust) se = , t = 1.84 BOL

19 Employment laws determine male labor force participation Male Labor Force Participation HKG JAMYS GBR JPN CAN AUS ARG ZMB NGA SGP NZL USA ZWE URY ZAFCOLBOL EGY MAR IRL ISR GHA PAK ROU UGA KEN THA CHN HUN CHE TUR ECU KOR IND CHL AUT PHL LKA PER GRC HRV BGR BEL DNK BRA SENVNMDOM MEX DEU VEN NOR LTU PAN ITA POL SWE TZA LVA NLD IDN FIN ESP UKR SVN JOR FRA PRT TUN RUS KAZ Employment Regulation coef = , (robust) se = , t = -3.5

20 Employment laws determine unemployment of males Unemployment of Males NZL JPN HKG TUR CAN IRL GBR EGY AUS URY HUN USA ROU ARGECU SGP PAKBOL THA LKA PHL KOR PER CHL HRV BGR GRC BEL AUT DOM UKR LTU DNK BRA MEX POL ITA PAN LVA FRA NOR DEU ESP FIN GEO SVN SWE NLD RUS Employment Regulation coef = , (robust) se = , t = 3.21 PRT

21 What about financial markets?

22 Variable: SHAREHOLDER RIGHTS Description: An index of anti-director rights. The index is formed by adding 1 when: (1) the country allows shareholders to mail their proxy vote to the firm; (2) shareholders are not required to deposit their shares prior to the General Shareholders Meeting; (3) cumulative voting or proportional representation of minorities in the board of directors is allowed; (4) an oppressed minorities mechanism is in place; (5) the minimum percentage of share capital that entitles a shareholder to call for an Extraordinary Shareholders Meeting is less than or equal to 10 percent (the sample median); or (6) shareholders have preemptive rights that can only be waved by a shareholders vote. The index ranges from 0 to 6. Source: La Porta et al, Law and Finance, Journal of Political Economy (1998). Shareholder Rights Means by Legal Origin British Origin French Origin German Origin Scan. Origin Total countries represented: 49 World mean: 3.0

23 Variable: DISCLOSURE Description: The index of disclosure equals the arithmetic mean of: (1) Prospectus; (2) Compensation; (3) Shareholders; (4) Inside ownership; (5) Irregular contracts; (6) and Transactions. Source: La Porta et al, What Works in Securities Laws?, Journal of Finance (2005). Disclosure Means by Legal Origin British Origin French Origin German Origin Scan. Origin Total countries represented: 49 World mean: 0.60

24 Variable: LIABILITY STANDARD Description: The index of liability standards equals the arithmetic mean of: (1) Liability standard for the issuer and its directors; (2) Liability standard for the distributor; and (3) Liability standard for the accountant. Source: La Porta et al, What Works in Securities Laws?, Journal of Finance (2005). Liability Standard Means by Legal Origin British Origin French Origin German Origin Scan. Origin Total countries represented: 49 World mean: 0.47

25 Variable: CREDITOR RIGHTS Description: A score of one is added for each of the following legal rights of secured lenders: (1) there are restrictions, such as creditor consent, for a debtor to file for reorganization; (2), there is no automatic stay on assets; (3) secured creditors are paid first out of the proceeds of liquidating a bankrupt firm; (4) management does not retain administration of property pending the resolution of the reorganization. Source: Djankov et al, Private Credit in 129 Countries, working paper (2004). Creditor Rights Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 129 World mean: 1.79

26 Variable: GOVERNMENT OWNERSHIP OF BANKS IN 1995 Description: Share of the assets of the top 10 banks in a given country owned by the government of that country in Source: La Porta et al, Government Ownership of Banks, Journal of Finance (2002). Government Ownership of Banks Means by Legal Origin British Origin French Origin German Origin Scan. Origin Socialist Origin Total countries represented: 92 World mean: 41.57

27 Outcome Variables rket cap Average of the ratio of stock market capitalization held by small shareholders to gross domestic product for the period The stock market capitalization held by small shareholders is computed as the product o the aggregate stock market capitalization and the average percentage of common shares not owned by the top three shareholders in the ten largest non-financial, privately-owned domestic firms in a given country. mber of firms Logarithm of the number of domestic firms listed in a given country. O value Average of the ratio of the equity issued by newly-listed firms in a given country (in thousands) to its gross domestic product (in millions). ock premia The block premia is computed taking the difference between the price per share paid for the control block and the exchange price two days after the announcement of the control transaction, dividing by the exchange price and multiplying by the ratio of the proportion of cash flow rights represented in the controlling block. nership ncentration Average percentage of common shares owned by the top three shareholders in the ten largest non-financial privately-owned domestic firms in a given country. ivate credit / P Ratio of credit from deposit taking financial institutions to the private sector (IFS lines 22d and 42d) relative to GDP (IFS line 99b). erest rate spread Interest rate charged by banks on loans to prime customers minus the interest rate paid by commercial o similar banks for demand, time or saving deposits. For most countries, the data is available for the period 1970 to 1995.

28 Shareholder Rights determine market capitalization Market Cap / GDP BEL JOR MEX VEN DEU ITA CHE NLD IDN THA EGY TUR ECU GRC DNK URY AUT FIN SWE TWN PHL ZWE NGA KEN LKA FRA PER BRA COL PRT ISR MYS SGP AUS JPN IRL ESP NZL ARG NOR HKG GBR USA ZAF IND CHL CAN PAK Shareholder Rights Index coef = , (robust) se = , t = 3.41

29 Shareholder Rights determine number of listed firms Log of Number of Listed Firms BEL DEU ITA MEX JOR VEN EGY THA IDN TUR GRC CHE DNK NLD AUT ECU URY FRA ISR BRA TWN PER PHL LKA NGA SWE COL PRT FIN ZWE KEN JPN AUS MYS ESP SGP NOR NZL ARG IRL IN USA GBR CAN PA ZAF HKG CHL Shareholder Rights Index coef = , (robust) se = , t = 3.78

30 Shareholder Rights determine IPO value TWN GBR IPO Value BEL ITA JOR DEU VEN MEX GRC CHE IDN EGY TUR THA ECU NLD URY AUT DNK SWE PHL ZWE KEN NGA LKA FIN PRT COL PER FRA BRA ISR AUS MYS IRL SGP ESP JPN NOR ARG NZL HKG CAN USA IND PAK ZAF CHL Shareholder Rights Index coef = , (robust) se = , t = 2.04

31 Shareholder Rights determine block premia Block Premia ITA DEU MEX VEN AUT CHE DNK NLD ISR PRT TUR SWE THA FRA FIN EGY IDN TWN BRA PER COL PHL NOR SGP NZL JPN AUS ESP ARG MYS USA HKG GBR CAN CHL ZAF Shareholder Rights Index coef = , (robust) se = , t = -2.91

32 Shareholder rights determine ownership concentration Ownership Concentration BEL ITA MEX DEU VEN JOR URY GRC AUT TUR EGY DNK CHE ECU IDN NLD THA COL ISR PRT BRA KEN PER LKA PHL ZWE FIN FRA SWE NGA TWN SGP ESP ARG NZL MYS NOR IRL AUS JPN HKG ZAF CAN CHL IND USA PAK GBR Shareholder Rights Index coef = , (robust) se = , t = -3.95

33 Disclosure determines market capitalization Market Cap / GDP URY ECU VEN AUT FIN NLD SWE EGY PER BRA GRC BEL PRT COL TUR ESP ARG DEU DNK NOR IDN ZWE CHL KEN PAK MEX CHE IRL NZL ISR ITA TWN JORNGA AUS GBR JPN FRA KOR LKA ZAF PHL HKG CAN USA MYS THA SGP IND Disclosure Index coef = , (robust) se = , t = 5.53

34 Disclosure determines number of listed firms Log of Number of Listed Firms URY ECU VEN AUT BRA JPN GBR EGY PAK AUS DEU ESP ISR FRA KOR IDNCHL TWN GRC PER TUR NGA LKA COL NLD DNK SWE MEX ITA NOR CHE BEL PRT ARG NZL JOR FIN ZWE KEN IRL ZAF MYS HKG THA PHL CAN IND USA SGP Disclosure Index coef = , (robust) se = , t = 5.53

35 Disclosure determines IPO value TWN GBR IPO Value URY ECU VEN AUT BRA GRC FINTUR SWE IDN EGY ZWE KEN PRT PERDEU COLNLD ESP BEL CHL MEX ARGNOR DNK CHE IRL ITA PAK ISR NZL JOR AUS KOR NGA FRA JPN LKA PHL ZAF HKG CAN MYS THA SGP IND USA Disclosure Index coef = , (robust) se = , t = 3.9

36 Disclosure determines block premia Block Premia AUT VEN BRA PRT DEU PER MEX ISR ITA CHL COL ARG CHE DNK TUR NLD SWE FIN NOR NZL ESP EGYIDN KOR JPN FRA AUS GBR TWN HKG USA SGP CAN PHL MYS THA ZAF Disclosure Index coef = , (robust) se = , t = -4

37 Disclosure determines ownership concentration Ownership Concentration URY ECU VEN AUT BRA GRC MEXITA BELCOL PER DEU PRT ESP ARG TUR EGY KEN ISR DNK NZL IDN CHE ZWE JOR NLD CHL FIN NOR IRL FRA SWE PAK AUS NGA JPN KOR TWN LKA GBR ZAF PHL HKG SGP MYS CAN THA IND USA Disclosure Index coef = , (robust) se = , t = -3.61

38 Liability Standard determines market capitalization Market Cap / GDP DEU AUT SWE JOR ECU FRA THA EGY TUR COL MEX ARG VEN URY ITA CHE CHL PAK NGA ZWE KEN LKA IRL BRA BEL NZL GRC DNK NOR HKG GBR FIN TWN SGP AUS MYS ZAF IDN JPN KOR PER ESP PRT ISR IND NLD USA CAN PHL Liability Standard Index coef = , (robust) se = , t = 4.99

39 Liability Standard determines number of listed firms Log of Number of Listed Firms DEU TUR MEX ITA COL SWE JOR ARG VEN AUT URY FRA ECU EGY THA PAK BRA CHL LKANGA GRC NOR CHE DNK BEL NZL ZWE KEN IRL IND JPN GBR AUS KOR MYS ZAF HKG ISR ESP TWN IDN SGP PER PRT FIN NLD USA CAN PHL Liability Standard Index coef = , (robust) se = , t = 3.06

40 Liability Standard determines IPO value GBR TWN IPO Value DEU ECU COL MEX URY AUT ITA SWE EGY TUR THA JOR VEN FRA ARG CHE IRL CHL BEL NOR BRA ZWE PAK NGA KEN LKA NZL GRC DNK HKG AUS MYS KOR SGP IDN IND FIN PRT ESPZAF PER JPN ISR NLD CAN USA PHL Liability Standard Index coef = , (robust) se = , t = 3.88

41 Liability Standard determines block premia Block Premia DEU AUT MEX COL ITA VEN ARG TUR SWE FRA THA EGY BRA CHL CHE NOR NZL DNK ISR PRT KOR PER FIN HKG SGP JPN GBR AUS ESP TWN MYS IDN ZAF NLD USA CAN PHL Liability Standard Index coef = , (robust) se = , t = -2.88

42 Liability Standard determines ownership concentration Ownership Concentration DEU URY AUTMEX ITA COL TUR EGY ARG ECU VEN JOR THA FRA SWE BEL BRA NZL LKA CHE CHL NOR IRL GRC DNK PAK NGA KEN ZWE HKG SGP ISR ESP PRT MYS PER ZAF IDN FIN AUS JPN GBR KOR TWN IND NLD CAN USA PHL Liability Standard Index coef = , (robust) se = , t = -3.09

43 Creditor Rights determine private credit Private Credit / GDP FRA TUN ECU CIV COL PER MEX SEN CHE PRT USA IRL CAN PRY GRCGTM SWE HUN BRA POL CRI ROU FIN ARG JOR VNM MAR PAK PHL GHA ZMB THA EGY BOL ESP TWN HND IND MWI MOZ JPN CHL NAM LKA TZA IDN UGA DOM UKR ITA GEO NOR BEL BGR KAZ JAM TUR RUS ARELTU MYS NLD DNK DEU SGPZAF KOR AUT ISR AUS URY HRV KWTLVA BWA SVNSLV VEN HKG GBRPAN NZL LBN KEN ZWE NGA Creditor Rights Index coef = , (robust) se = , t = 2.66

44 Government ownership of banks determines interest rate spread Interest Rate Spread NGAZAF CHL MEX ECU NZL ESPIRL CAN GBR USA JPN ZWE PRT PHL NLD JOR DNK AUS FRA MYS THA SGP CHE KOR IDN SWE ITA BEL FIN DEU COL VEN NOR LKA ARG ISR URY GRC EGY Government Ownership of Banks coef = , (robust) se = , t = 1.69

45 Political Variables ief executive and rgest party in ngress have left center political ientation Measures the percentage of years between 1928 and 1995, and, alternatively, between 1975 an 1995, during which both the party of the chief executive and the largest party in congress had left o center orientation. If the country was not independent in the initial year of the period, we use th independence year as the first period. ion density Measures the percentage of the total work force affiliated to labor unions in tocracy This variable classifies regimes based on their degree of autocracy. oportional presentation Equals one if legislators were elected based on the percentage of votes received by their party; equal zero otherwise. vided government The probability that two randomly chosen deputies will belong to a different party in a given year. mocracy A measure of the degree of democracy in a given country based on: (1) the competitiveness of politica participation; (2) the openness and competitiveness of the chief executive recruitment; and (3) th constraints on the chief executive.

46 Cultural Variables ercent protestant Identifies the percentage of the population of each country that belonged to the protestant religions the world in uddhist, Catholic, uslim, Ortho, rotest, Other A dummy variable that identifies the religion practiced by the largest proportion of the populatio There are nine religions: Athiest, Buddhist, Catholic, Hindu, Indigenous, Judaism, Muslim, Orthod Christian, and Protestant.

47 Institutional possibilities Social losses due to private expropriation (Disorder) Private orderings Independent judges Total loss minimization Institutional possibility frontier (IPF) 45 o Regulatory state Socialism Social losses due to state expropriation (Dictatorship)

48 Legal origins Disorder France Civil law Common law England Dictatorship

49 Transplantation of laws Disorder Common law Civil law Less developed country Developed country Dictatorship