This paper considers a property law enactment that gave creditors more rights over the assets underlying their secured loans to private firms and gave private firms more protections against the potential expropriation of their assets. We find that this property law enactment led to a significant increase in firm value. We also find that the law׳s impact on value was more profound for firms with more tangible assets, lower internal cash flows, and stronger growth opportunities, and less profound for politically connected firms. Taken together, our findings confirm the importance of property rights protection in enhancing firm value.

We examine the effect of directors' and officers' liability insurance (D&O insurance) on the outcomes of merger and acquisition (M&A) decisions. We find that acquirers whose executives have a higher level of D&O insurance coverage experience significantly lower announcement-period abnormal stock returns. Further analyses suggest that acquirers with a higher level of D&O insurance protection tend to pay higher acquisition premiums and their acquisitions appear to exhibit lower synergies. The evidence provides support for the notion that the provision of D&O insurance can induce unintended moral hazard by shielding directors and officers from the discipline of shareholder litigation.

We study the impact of an epidemic disease on modern financial development by exploiting geographic variations in the precolonial survival conditions of the TseTse fly, which transmits an epidemic disease that is harmful to humans and fatal to livestock in Africa. Using newly georeferenced data, we discover that firms and households in regions historically more exposed to the epidemic disease have less access to external financing today. Exploring the channels, we find that people in historically infested regions are less likely to trust others and financial institutions, to share credit information and to learn and adopt new financial technologies.

This study uses two distinct quasi-natural experiments to examine the effect of institutional shareholders on corporate social responsibility (CSR). We first find that an exogenous increase in institutional holding caused by Russell Index reconstitutions improves portfolio firms’ CSR performance. We then find that firms have lower CSR ratings when shareholders are distracted due to exogenous shocks. Moreover, the effect of institutional ownership is stronger in CSR categories that are financially material. Furthermore, we show that institutional shareholders influence CSR through CSR-related proposals. Overall, our results suggest that institutional shareholders can generate real social impact.

We analyze how direct employee voice affects financial leverage. German law mandates that firms’ supervisory boards consist of an equal number of employees’ and owners’ representatives. This requirement, however, applies only to firms with more than two thousand domestic employees. We exploit this discontinuity and the law’s introduction in 1976 for identification and find that direct employee power increases financial leverage. This is explained by a supply side effect: as banks’ interests are similar to those of employees, higher employee power reduces agency conflicts with debt providers, leading to better financing conditions. These findings reveal a novel mechanism of direct employee influence.

Do stock markets act as a spare tire during banking crises, providing an alternative corporate financing channel and mitigating the economic severity of these crises? Using firm-level data in 36 countries from 1990 through 2011, we find that the adverse consequences of banking crises on equity issuances, firm profitability, employment, and investment efficiency are smaller in countries with stronger shareholder protection laws. These findings are not explained by the development of stock markets or financial institutions prior to the crises, the severity of the banking crisis, or overall economic, legal, and institutional development.

Building on two sources of exogenous shocks to analyst coverage (broker closures and mergers), we explore the causal effects of analyst coverage on mitigating managerial expropriation of outside shareholders. We find that as a firm experiences an exogenous decrease in analyst coverage, shareholders value internal cash holdings less, its CEO receives higher excess compensation, its management is more likely to make value-destroying acquisitions, and its managers are more likely to engage in earnings management activities. Importantly, we find that most of these effects are mainly driven by the firms with smaller initial analyst coverage and less product market competition. We further find that after exogenous brokerage exits, a CEO׳s total and excess compensation become less sensitive to firm performance in firms with low initial analyst coverage. These findings are consistent with the monitoring hypothesis, specifically that financial analysts play an important governance role in scrutinizing management behavior, and the market is pricing an increase in expected agency problems after the loss in analyst coverage.

This article examines the impact of the divergence between corporate insiders' control rights and cash-flow rights on firms' external finance constraints via generalized method of moments estimation of an investment Euler equation. Using a large sample of U.S. firms during the 1994–2002 period, we find that the shadow value of external funds is significantly higher for companies with a wider insider control-ownership divergence, suggesting that companies whose corporate insiders have larger excess control rights are more financially constrained. The effect of insider excess control rights on external finance constraints is more pronounced for firms with higher degrees of informational opacity and for firms with financial misreporting, and is moderated by institutional ownership. The results show that the agency problems associated with the control-ownership divergence can have a real impact on corporate financial and investment outcomes.

Building on the pioneering study by Beck, Demirguc-Kunt, and Levine (2006), this study examines the effects of media ownership and concentration on corruption in bank lending using a unique World Bank data set covering more than 5,000 firms across 59 countries. We find strong evidence that state ownership of media is associated with higher levels of bank corruption. We also find that media concentration increases corruption both directly and indirectly through its interaction with media state ownership. In addition, we find that media state ownership and media concentration both accentuate the positive link between official supervisory power and lending corruption and attenuate the negative link between the regulations that empower private monitoring and corruption in lending. Media state ownership or media concentration also accentuates the positive link between banking concentration and corruption in lending. Furthermore, the links between media structure and corruption are more pronounced when the borrowing firm is privately owned.

The telegraph was introduced to China in the late 19th century, a time when China also saw the rise of modern banks. Based on this historical context, this paper documents the importance of information technology in banking development. We construct a data set on the distributions of telegraph stations and banks across 287 prefectures between 1881 and 1936. The results show that the telegraph significantly expanded banks’ branch networks in terms of both number and geographic scope. The effect of the telegraph remains robust when we instrument it using proximity to the early military telegraph trunk.