Rafael la porta

Rafael la porta
The Tuck School of Business · Department of Finance

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88
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Publications

Publications (88)
Article
We assemble homeowner insurance claims from 28 independently operated country subsidiaries of a multinational insurance firm. We propose a new insurance model, in which consumers can make invalid claims and firms can deny valid claims, as is common in the data. In the model, trust and honesty shape equilibrium insurance contracts, disputes, and cla...
Article
We revisit La Porta's (1996) finding that returns on stocks with the most optimistic analyst long‐term earnings growth forecasts are lower than those on stocks with the most pessimistic forecasts. We document the joint dynamics of fundamentals, expectations, and returns of these portfolios, and explain the facts using a model of belief formation ba...
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In developing countries, informal firms account for up to half of economic activity. They provide livelihood for billions of people. Yet their role in economic development remains controversial with some viewing informality as pent-up potential and others viewing informality as a parasitic organizational form that hinders economic growth. In this p...
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We use a newly assembled sample of 1,503 regions from 82 countries to compare the speed of per capita income convergence within and across countries. Regional growth is shaped by similar factors as national growth, such as geography and human capital. Regional convergence is about 2.5% per year, not more than 1% per year faster than convergence bet...
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We mailed letters to non-existent business addresses in 159 countries (10 per country), and measured whether they come back to the return address in the US and how long it takes. About 60% of the letters were returned, taking over 6 months, on average. The results provide new objective indicators of government efficiency across countries, based on...
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We investigate the determinants of regional development using a newly constructed database of 1,569 subnational regions from 110 countries covering 74% of the world’s surface and 97% of its GDP. We combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination o...
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We examine the productivity of informal firms (those that are not registered with the government) in 24 African countries using field work and World Bank firm level data. We find that productivity jumps sharply if we compare small formal firms to informal firms, and rises rapidly with the size of formal firms. Critically, informal firms appear to b...
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We provide new estimates of investment-cashflow sensitivities for a large cross section of U.S. firms from 1971–2006. Our tests extend the literature in several key ways and provide strong evidence that cashflow matters beyond its correlation with investment opportunities. Controlling only for M/B, a dollar of current- and prior-year cashflow is as...
Article
seminar participants at the Hong Kong Polytechnic University, the New University of Lisbon, and the Stockholm School of Economics for valuable suggestions. We are also very grateful to Karl Lins and Yupana Wiwattanakantang for sharing their emerging market and Thai group data for verification purposes, and to Suk-won Kim, Daejin Kim, Gloria Tian, a...
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Simeon Djankov et al. (2003) introduce a measure of the quality of contract enforcement -- the formalism of civil procedure -- for 109 countries as of 2000. For 40 of these countries, we compute procedural formalism every year since 1950. We find that large differences in procedural formalism between common and civil law countries existed in 1950 a...
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We collect data on the rules and practices of financial and conflict disclosure by members of Parliament in 175 countries. Although twothirds of the countries have some disclosure laws, less than one-third make disclosures available to the public, and less than one-sixth of potentially useful information is publicly available in practice, on averag...
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Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effect...
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In the last decade, economists have produced a considerable body of research suggesting that the historical origin of a country's laws is highly correlated with a broad range of its legal rules and regulations, as well as with economic outcomes. We summarize this evidence and attempt a unified interpretation. We also address several objections to t...
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Contrast this theoretical paradigm with an actual example of a securities issue from the Netherlands (Velthuyse and Schlingmann (1995)). In 1987–1988, the Dutch bank ABN Amro underwrote some bonds of Coopag Finance BV, a Dutch financial company wholly owned by Co-op AG, a diversified German firm. The bonds were guaranteed by Co-op AG. The prospectu...
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We present a new measure of legal protection of minority shareholders against expropriation by corporate insiders: the anti-self-dealing index. Assembled with the help of Lex Mundi law firms, the index is calculated for 72 countries based on legal rules prevailing in 2003, and focuses on private enforcement mechanisms, such as disclosure, approval,...
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We examine CEO pay and incentives around major corporate investments to explore whether compensation policies in investing firms counter or exacerbate the divergence in interests between CEOs and shareholders. We find that CEOs are richly rewarded for growth through acquisition, and to a lesser extent for growth via capital expenditure. Even in mer...
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We examine the effect of securities laws on stock market development in 49 countries. We find little evidence that public enforcement benefits stock markets, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets. *We are grateful to the Inter-American Development Bank,...
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We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for...
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Recent research has documented large differences among countries in ownership concentration in publicly trade firms, in the breadth and depth of capital markets, in dividend policies, and access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are protect...
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We investigate the regulation of labor markets through employment, collective relations, and social security laws in 85 countries. We find that the political power of the left is associated with more stringent labor regulations and more generous social security systems, and that socialist, French, and Scandinavian legal origin countries have sharpl...
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We investigate the regulation of labor markets through employment, collective relations, and social security laws in 85 countries. We find that the political power of the left is associated with more stringent labor regulations and more generous social security systems, and that socialist, French, and Scandinavian legal origin countries have sharpl...
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In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new database of constitutional rules in 71 countries that reflect these prov...
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We examine the effect of securities laws on stock market development in 49 countries. We find almost no evidence that public enforcement benefits stock markets, and strong evidence that laws facilitating private enforcement through disclosure and liability rules benefit stock markets.
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This paper provides a survey on studies that analyze the macroeconomic effects of intellectual property rights (IPR). The first part of this paper introduces different patent policy instruments and reviews their effects on R&D and economic growth. This part also discusses the distortionary effects and distributional consequences of IPR protection a...
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this paper are entirely those of the authors. They do not necessarily represent the view of the World Bank, its Executive Directors, or the countries they represent. Policy Research Working Papers are available online at http://econ.worldbank. org
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In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for nonpayment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is sys...
Article
In recent years, comparative economics experienced a revival, with a new focus on comparing capitalist economies. The theme of the new research is that institutions exert a profound influence on economic development. We argue that, to understand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and th...
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A review of the evidence on judicial reform across countries shows that those seeking to improve economic performance should not focus on judicial efficiency alone but on independence as well. It also shows that the level of resources poured into the judicial system and the accessibility of the system have little impact on judicial performance. Mos...
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Economic theory and evidence from a variety of debt markets shed light on current reform proposals concerning emerging market debt. Debt markets, including the U.S. municipal bond market, generally function best when the rights of creditors are protected most effectively. Since current IMF reform proposals significantly emasculate creditor rights,...
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In many countries, banks lend to firms controlled by the bank's owners. We examine the benefits of related lending using a newly assembled data set for Mexico. Related lending is prevalent (20 percent of commercial loans) and takes place on better terms than arm's-length lending (annual interest rates are 4 percentage points lower). Related loans a...
Article
In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for non-payment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is sy...
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Full-text available
We present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better prote...
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In recent years, comparative economics experienced a revival, with a new focus on comparing capitalist economies. The transition from socialism, the Asian financial crisis, and the European economic and political integration, have challenged our understanding of how capitalist economies and societies work. Capitalist economies differ in important w...
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Full-text available
In cooperation with Lex Mundi member law firms in 109 countries, we measure and describe the exact procedures used by litigants and courts to evict a tenant for non-payment of rent and to collect a bounced check. We use these data to construct an index of procedural formalism of dispute resolution for each country. We find that such formalism is sy...
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We assemble data on government ownership of banks around the world. The data show that such ownership is large and pervasive, and higher in countries with low levels of per capita income, backward financial systems, interventionist and inefficient governments, and poor protection of property rights. Higher government ownership of banks in 1970 is a...
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Hayek (1960) distinguishes the institutions of English freedom, which guarantee the independence of judges from political interference in the administration of justice, from those of American freedom, which allow judges to restrain law-making powers of the sovereign through constitutional review. We create a data base of constitutional rules in 71...
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This paper shows both theoretically and empirically the importance of bureaucratic quality in shaping the pattern of corporate finance in different countries. It argues that firm management under corrupt and interventionist governments is particularly powerful in expropriating outside investors because they can threaten to withdraw their government...
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Hayek (1960) distinguishes the institutions of English freedom, which guarantee the independence of judges from political interference in the administration of justice, from those of American freedom, which allow judges to restrain law-making powers of the sovereign through constitutional review. We create a data base of constitutional rules in 71...
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We present new data on the regulation of entry of start-up firms in 85 countries. The data cover the number of procedures, official time, and official cost that a start-up must bear before it can operate legally. The official costs of entry are extremely high in most countries. Countries with heavier regulation of entry have higher corruption and l...
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Full-text available
Recent research has documented large differences among countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are...
Article
Full-text available
We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify the ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely held, in contrast to the Berle and Means image of ownership of the...
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this paper. 1 I. Introduction The laws of many countries in the world originate in those of England and France. Legal systems based on the laws of England are typically described as belonging to the common law tradition, while those based on the laws of France as belonging to the civil, or Roman, law tradition 1 . Structurally, the two legal system...
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In cooperation with Lex Mundi member law firms in 109 countries, this paper measures and describes the exact procedures used by litigants and courts to evict a tenant for non-payment of rent and to collect a bounced check. We use these data on legal structure to construct an index of regulation of dispute resolution for each country. We find that t...
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This paper presents direct evidence on an important feature of banking systems in many countries around the world: related lending. Related lending refers to lending by banks to persons who control or own the bank and/or to borrowers controlled, or owned by the same persons who control or own the bank. Using credit-level data for Mexico, we show th...
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What affects the number of banks a company chooses to borrow from? This paper provides evidence of a negative correlation across countries between shareholder protection and average number of banks used by firms, and proposes a simple explanation for this result. The intuition of the model is that setting up many bank relations reduces the rents th...
Article
Recent research has documented large differences among countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. A common element to the explanations of these differences is how well investors, both shareholders and creditors, are...
Article
Full-text available
Tunneling represents the most fundamental process in physics. According to our present understanding tunneling started the universe about 13 billions years ago. Nowadays we know that tunneling is involved in radioactivity and in nuclear fusion — the latter effect is heating the sun. Tunneling is the process of molecular inversion motion in chemistr...
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this paper, Stulz develops two arguments why the cost of equity capital will decline with the globalization of capital markets. First, he shows that the expected returns that investors require to compensate them for the risk they bear fall. Second, he argues that agency costs, which restrict access to external capital and increase the cost of capit...
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This paper outlines and tests two agency models of dividends. According to the "outcome model," dividends are paid because minority shareholders pressure corporate insiders to disgorge cash. According to the "substitute model," insiders interested in issuing equity in the future pay dividends to establish a reputation for decent treatment of minori...
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In this paper, we investigate a neglected aspect of financial systems of many countries around the world; government ownership of banks. We assemble data which establish four findings. First, government ownership of banks is large and pervasive around the world. Second, such ownership is particularly significant in countries with low levels of per...
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In this paper from the Yale School of Management, the authors describe the various forms that tunneling can take, and examine under what circumstances it is legal. Tunnelling is defined as the transfer of assets and profits out of firms for the benefit of their controlling shareholders. The authors also discuss two important legal principles-the du...
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The political economy of trade policy has largely neglected popular election. When legislatures determine protection, politicians supply tariffs that are demanded by their constituents. A model of this political market is specified and tested with data related to the McKinley Tariff of 1890. An index of the extent to which tariff protection accrued...
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We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnoling...
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Critics of privatization argue that the increased profitability of privatized companies comes at the expense of society. Using data from 97 percent of those nonfinancial firms privatized in Mexico during the period 1983–1991, we study two channels for social losses: (1) increased prices, and (2) layoffs and lower wages. Privatization is followed by...
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This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common-law countries generally have the strongest, and French-civil-law countries the weakest, legal protections of investors, with German- and Scandinavi...
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Full-text available
We investigate empirically the determinants of the quality of governments in a large cross-section of countries. We assess government performance using measures of government intervention, public sector efficiency, public good provision, size of government, and political freedom. We find that countries that are poor, close to the equator, ethnoling...
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Full-text available
This paper addresses the question of why firms pay dividends, the so-called "dividend puzzle", from the agency perspective. We outline two agency models of dividends. On what we call "the outcome" model, dividends are the result of effective pressure by minority shareholders to force corporate insiders to disgorge cash. Under this model, stronger m...
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Full-text available
We present data on ownership structures of large corporations in 27 wealthy economies, making an effort to identify ultimate controlling shareholders of these firms. We find that, except in economies with very good shareholder protection, relatively few of these firms are widely-held, in contrast to the Berle and Means image of ownership of the mod...
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There is widespread dissatisfaction with existing bankruptcy procedures around the world. We propose a fast and cheap bankruptcy mechanism which leaves little room for court discretion and meets the desiderata of a good procedure. Our scheme has four essential building blocks. The first part consists of the reorganization offers for the firm and/or...
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We develop a new bankruptcy procedure that makes use of multiple auctions. The procedure" is designed to work even when capital markets do not function well (for example in developing" economies, or in economies in transition) -- although it can be used in all economies."
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Criticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as fir...
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Using a sample of forty-nine countries, the authors show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest i...
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This article examines the hypothesis that the superior return to so‐called value stocks is the result of expectational errors made by investors. We study stock price reactions around earnings announcements for value and glamour stocks over a 5‐year period after portfolio formation. The announcement returns suggest that a significant portion of the...
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Several authors suggest that trust is an important determinant of cooperation between strangers in a society, and therefore of performance of social institutions. We argue that trust should be particularly important for the performance of large organizations. In a cross-section of countries, evidence on government performance, participation in civi...
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Full-text available
This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil...
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Previous research has shown that stocks with low prices relative to book value, cash flow, earnings, or dividends (that is, value stocks) earn high returns. Value stocks may earn high returns because they are more risky. Alternatively, systematic errors in expectations may explain the high returns earned by value stocks. The author tests for the ex...
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Full-text available
We propose a new bankruptcy procedure that makes use of multiple auctions. The procedure is designed to work even when capital markets do not function well (for example, in developing economies, or in economies in transition) - although it can be used in all economies.
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Full-text available
The paper characterizes several empirical regularities of closed- end fund prices and examines the extent to which a 'sentiment' model of asset prices is consistent with the empirical regularities. We find that after controlling for the effect of cross-border investment restrictions, country funds trade at an average discount. Discounts vary substa...