This project examines the institutions of corporate governance around the world, with a particular focus on the role of legal institutions in addressing agency problems between corporate insiders and outside investors, and on corporate decisions made in different countries operating under different legal institutions. The approach in all the specific projects is to compare outcomes across countries that have different legal institutions. Earlier work has shown that legal institutions governing investor protection, including both the nature of the laws and the quality of their enforcement, differ significantly across countries and that these differences matter enormously for how firms are owned and financed. Three projects are undertaken that continue this line of analysis, but deal with new topics. The first project deals with dividend policies around the world. Recent research has argued that dividend policies help to address agency problems because the cash that is disgorged by firms to investors cannot be wasted or diverted by corporate insiders. There are two broad versions of the agency theory of dividends: one, dividends are an outcome of investors using their powers to force firms to disgorge cash; another, firms choose to pay dividends to establish a reputation for good treatment of investors, so that they can raise more equity funds in the future. These two theories have different predictions for dividend policies of firms operating under different legal regimes. The predictions of these theories on a cross section of about 4,000 firms from 33 countries. The second project focuses on ownership patterns of large corporations in 25 to30 wealthy economies. While there is a general recognition that the Berle Means widely held corporation is a peculiarity of wealthy Anglo Saxon economies, there is a conspicuous gap both in the theory of ownership of firms operating in poor legal environments, and in the knowledge of facts in this area. A database of about 30 large firms per country is being constructed, which contains detailed information on the ownership structure of each firm. In most countries, firms are owned by other firms, holding companies, and financial institutions, which in turn are owned by more firms and institutions, etc. An attempt is made to `go up the pyramids` and to identify the ultimate owners of each firm. The data will allow for the development of basic facts about ownership patterns of firms in different countries. The third project focuses on government ownership of commercial banks around the world, which appears to be a pervasive phenomenon. Government finance is one of the three ways of financing economic growth, in addition to capital markets and private banks. The effects of government ownership of banks on economic growth is examined, and compared to the effects of private financing. To this end, a database is being constructed of both complete and partial government ownership of the largest commercial banks in over 90 countries. These data are used to examine the growth question, and to also address the more microeconomic question of how government ownership of banks influences the allocation of credit in different countries between private and state firms, firms of different sizes, and firms in different sectors of the economy.
