The onset of the Asian financial crisis in Malaysia reduced the expected value of government subsidies to politically connected firms, accounting for roughly 9% of the estimated 60 billion loss in their market value from July 1997 to August 1998. Firing the Deputy Prime Minister and imposing capital controls in September 1998 primarily benefited firms with strong ties to Prime Minister Mahathir, accounting for roughly 32% of these firms’ estimated 5 billion gain in market value during September 1998. The evidence suggests Malaysian capital controls provided a screen behind which favored firms could be supported.

We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital-intensive industries.

Financial crises frequently increase public sector borrowing and threaten some form of sovereign debt crisis. Until recently, high income countries were thought to have become less vulnerable to severe banking crises that have lasting negative effects on growth. Since 2007, crises and attempted reforms in the United States and Europe indicate that advanced countries remain acutely vulnerable. Best practice from developing country experience suggests that regulatory constraints on the financial sector should be strengthened, but this is hard to do in countries where finance has a great deal of political power and cultural prestige, and where leverage is already high.

We exploit the major international health improvements from the 1940s to estimate the effect of life expectancy on economic performance. We construct predicted mortality using preintervention mortality rates from various diseases and dates of global interventions. Predicted mortality has a large impact on changes in life expectancy starting in 1940 but no effect before 1940. Using predicted mortality as an instrument, we find that a 1 percent increase in life expectancy leads to a 1.7-2 percent increase in population. Life expectancy has a much smaller effect on total GDP, however. Consequently, there is no evidence that the large increase in life expectancy raised income per capita. (c) 2007 by The University of Chicago. All rights reserved.

This paper evaluates the importance of "property rights institutions," which protect citizens against expropriation by the government and powerful elites, and "contracting institutions," which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history and document strong first‐stage relationships between property rights institutions and the determinants of European colonization strategy (settler mortality and population density before colonization) and between contracting institutions and the identity of the colonizing power. Using this instrumental variables approach, we find that property rights institutions have a first‐order effect on long‐run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible explanation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of weak contracting institutions but find it harder to mitigate the risk of expropriation in this way.

How does the structure of the families behind business groups affect the group's organization, governance, and performance? We construct a unique dataset of family trees and business groups for 93 of the largest business families in Thailand. We find a strong positive association between family size and family involvement in the ownership and control of the family businesses. The founders’ sons play a central role in both ownership and board membership, especially when the founder of the group is dead. Greater involvement by sons is also associated with lower firm-level performance, especially when the founder is dead. One hypothesis that emerges from our analysis is that part of the decay of family-run groups over time is due to the dilution of ownership and control across a set of equally powerful descendants of the founder, which creates a “race to the bottom” in tunneling resources out of the group firms.

Can a government credibly promise not to bailout firms whose failure would have major negative systemic consequences? Our analysis of Korea’s 1997–98 crisis suggests an answer: No. Despite a general “no bailout” policy during the crisis, the largest Korean corporate groups—facing severe financial and governance problems—could still borrow heavily from households by issuing bonds at prices implying very low expected default risk. The evidence suggests “too big to fail” beliefs were not eliminated by government promises because investors believed that this policy was not time consistent. Subsequent bailouts confirmed the market view that creditors would be protected.

ABSTRACT We study the determinants of vertical integration in a new data set of over 750,000 firms from 93 countries. We present a number of theoretical predictions on the interactions between financial development, contracting costs, and the extent of vertical integration. Consistent with these predictions, contracting costs and financial development by themselves appear to have no effect on vertical integration. However, we find greater vertical integration in countries that have both greater contracting costs and greater financial development. We also show that countries with greater contracting costs are more vertically integrated in more capital‐intensive industries.