We analyze how the law and its enforcement affect equity market equilibrium. Improvements in the legal system, while invariably associated with broader equity markets, have different effects on equity returns depending on the institutional change considered and on the degree of international...

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...

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...

Recent work documents that better legal institutions are associated with broader equity markets. We investigate whether international differences in legal institutions also help explain the international cross-section of expected stock returns. We document three main regularities. First, total...