This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder...

If the private benefits of control are high and management owns a small equity stake, managers and workers are natural allies. There are two forces at play. First, managers effectively transform employees into a “poison pill’’ by signing generous long-term labor contracts and thereby...

We develop a theory of the emergence of merchant guilds as an efficient mechanism to implement collusion among merchants and rulers, building on the natural complementarity between merchants’ market trading and mutual monitoring. Unlike the seminal paper in the existing literature, we focus...

If management has high private benefits and owns a small equity stake, managers and workers are natural allies against a takeover threat. Two forces are at play. First, managers can transform employees into a "shark repellent" through long-term labor contracts and thereby reduce the firm's...

We analyze the political determinants of investor and employment protection. Our model predicts that proportional electoral systems are conducive to weaker investor protection and stronger employment protection than majoritarian systems. This prediction is consistent with international panel...

In the past two decades, academic research has produced massive evidence of the beneficial role of financial development for growth and the allocation of investment. Our current vision, however, is dominated by instances of dysfunctional behavior of financial markets associated with acute and...