Investor protection and interest group politics

Lucian A. Bebchuk, Zvika Neeman

Research output: Contribution to journalArticlepeer-review

Abstract

We model how three groups - insiders in existing public companies, institutional investors, and entrepreneurs planning to take firms public - compete for influence over politicians setting the level of investor protection. We identify factors that push toward suboptimal investor protection, including corporate insiders' ability to use public firms' assets to influence politicians, and institutional investors' inability to capture fully the value of investor protection for outside investors. Entrepreneurs and public firms' interest in raising equity capital does not fully eliminate the distortions arising from insiders seeking to extract rents from capital in place. Our analysis produces many testable predictions concerning how investor protection varies over time and around the world.

Original languageEnglish
Pages (from-to)1089-1119
Number of pages31
JournalReview of Financial Studies
Volume23
Issue number3
DOIs
StatePublished - Mar 2010
Externally publishedYes

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