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Report De Programa Of the Corporative Finances


concentrated in the causes and the effects to finance the adjustments used by corporations. The group also studies corporative government, the relations between the banks and the corporations in diverse countries, and the effects of purchases of participation raised with a lever in benefits, happening in the investigation and development, and use.


Raghuram G. Rajan, * Director Of The Program

[ the report of following program appeared in the application of the means the 2000 reporter of NBER . ]

The program of the corporative finances of the NBER was established in 1991 with Robert W. Vishny like its first director; I made director of the program in 1998. The corporative finances, interpreted narrow, are the study of the policies of the investment and the financing of corporations. But since the companies are in the center of the economic activity -- and since almost any economist of the subject talks about to, of incentives and risksharing to the crises of modernity, it affects the corporative financing and the investment -- he are more and more hard to draw exact limits around the field. Reflecting this, Jeremy C. Stein and Luigi G. Zingales they organized a conference of the investigation of the universities of NBER in December of 1999 in the "macroeconomic effects of the corporative finances." About fact, I think that something of the most interesting work of corporative finances now is being made in its interface with other areas. I describe something of that work in this report.

Law and financial development

He is appropriate to begin with the work trajectory-that breaks recent of Andrei Shleifer on the connections between the law and the finances, since he gained the medal in1999 of Clark of the fights of Juan. In a series of papers, Porta de Rafael, Lopez-of-lopez-of-Silanes of Florencio, Shleifer, and Vishny describes to connections between the origin of the legislative system of a country and the degree to which the system protects investors. They find, among other things, that the countries with a legal code based on common law protect investors better than countries with a legal code based on civil law. (1)

The legislative systems also look like to directly affect the development of the external markets of capitals. They are that the bags and the markets of debt have developed less in countries with a French origin of the civil law that in countries with an origin of the common law. (2) the legal origin also appears to be related to the property, the corporative policies of the dividend, and estimates. (3) this body of the work has inspired the new whole Literature by law and finances.

Nevertheless, whereas the specific laws can affect reasonable the nature of the property and the corporative finances, still there is no theory of porqué the legal origin must affect finances, if in fact it does. Some economists, same including, think that other forces correlated with origins of the common law can be responsible for the relations that finding of Porta, of Lopez-of-lopez-of-Silanes, of Shleifer, and Vishny in the data. But the discussions of this class are what today makes the finances corporative a so fertile area of the investigation.

Corporative Investment

Whereas there has been much attention lent to the corporative financing, we know very little on the corporative investment, with exception of direct acquisitions, to a large extent due to the lack of the great data of the sample. Now we have certain data on the practices of the investment of diversified companies, and the investigators have begun to prove theories of the beneficial effects of these companies. The diversified companies create the internal markets of capitals, that then finance the good projects to that the market does not pay attention. (4) nevertheless, the notion that the diversified companies make investments efficient is not constant with the evidence every time greater than they negotiate in the companies focused in relation to of the discount. Recently, the investigators have tried to bind the discount that diversified the companies negotiates in a the distortions in the allocations of the budgets in capitals between the divisions. (5) others have tried to demonstrate that something of the evidence of the discount of the diversification, or the bad allocation, can be false or exaggerated. (6) clearly, this discussion will ignite by a certain hour.


It has been increasing interest in the sources of the innovation and the financial structures that promote it. Samuel S. Kortum and Josh Lerner (7) ask if innovation of the stimuli of the capital of company. In a study of 20 diverse industries on three decades, they find a positive association between the presence of the capital of company and the index to patent. Of course, such study raises applications the causality reversa: that is to say, it could be that the industries that innovate much attract the capital of company. They treat this possibility.

In another study, demonstration of Randall K. Morck, David To Strangeland, and Bernard Yeung (8) that the countries in which there are many of the inherited GDP in relation to of the abundance pass less in the innovation. In the particular, Canadian companies that are controlled by inheriting the store to make less R and D than the similar companies of another way. The authors conclude that the inherited corporative abundance prevents growth.

Banking activities

The recent financial crises in diverse countries have refocused the attention in our understanding of the banks. Bengt R. Holmstrom and Jean Tirole have developed a theory of the financial mediation and the liquidity based on the collateral value of assets. They extend this approach to the determination of the associated prizes of the liquidity to diverse assets. (9) this work is important in that it brings penetrations of corporative finances to the appraisal of financial assets.

Douglas W. Diamond and I (10) constructs a theory of the banks that explains porqué the financial fragility can be essential for the process to create liquidity and credit. Our work tries to explicitly model to the connections between the side of bank assets (loans illiquid) and its side of the responsibility (deposits demandable). Anil K. Kashyap, Stein, and Is (11) made a demonstration similar of the study that is one sinergia between the deposits of demand and the commissions of loan. The implication is that the banks can be only made perfectly safe destroying their same function.

Junio-Koo Kang and Rene M. Stulz (12) also deals with the critical paper the banks in the economy. They demonstrate that, concerning the independent companies, the Japanese companies with connections to the banks lost more value and had to reduce the investment no matter how hard other companies when their banks experienced difficulty. These results are not attributable to the causality reversa (that is to say, that the banks experienced difficulty because their companies of the client were in hardship).

Takeo Hoshi and Kashyap (13) provide a detailed analysis of the origins of the crisis of banking activities Japanese and their probable consequences. Finally, Edward J. Kane (14) portrays the crises of banking activities that have roiled world-wide markets in recent years like events information-that produce that they identify and they discredit the ineffective strategies for the markets of regulation of the banking activities.

According to theory, the importance of the banks comes partly great from its capacity to supervise and to render to the companies that the market will not touch. Randall S. Kroszner and Philip And Strahan (15) ask what bankers of the plomos to make members of the Council of companies; that is to say, this indicates a paper of supervision of the banks? They find that the banks in the United States appear to fear the implication in the management due to preoccupations for equitable responsibility of the subordination and the moneylender. Consequently, they tend mainly to be represented in boards of big, stable companies with the tangible assets and little confidence in debt in the short term. Thus, at least in the United States, they do not represent the bankers in boards of the companies that require the supervision.

Theory of the company/signature

Our members also have been trying to develop a better understanding of the limits of the corporation. Hierarchies model of Oliver D. Hart and Juan Moore (16) cradles in the allocation of the authority. The corporative owners have the last authority, but limited time to exercise it, so they delegate. The red deer and Moore already have some results in the optimal degree of decentralization and the limits of the company/signature. But is the incomplete approach of the contract espoused by legitimate Hart and Moore? It responds to his critical providing some conditions -- mainly the incapacity to trust -- underneath which he celebrates the incomplete approach of the contract. (17)

Krishna B. Kumar, Zingales, and I (18) examines if the theories of the limits of the company/signature can explain firm size through industries and of countries. We found that the industries that use many of physical capital have bigger companies, like the countries with greater judicial effectiveness. The industries that use many of capital are relatively smaller in countries with greater judicial effectiveness; we discussed that this is constant with the recent theories of the company/signature.

Structures Of the Property

The corporative property has been always an important subject of the investigation for our group. Finding of Clifford G. Holderness, Kroszner, and Dennis P. Sheehan (19) that, contrary to the previous investigation that suggests in charge them has very small exhibition to the fairness today with respect to the past, the property of the officials and the directors of negotiated companies public on average are today more stop than was previous in the century. The directive property rises from 13 percents for the universe of corporations interchange-enumerated in 1935, the year for which such data exist, to 21 percents in 1995. This work recently gained the first prize of Brattle for the best document on the corporative finances published by the newspaper of the finances.

The work of Shleifer (20) watches the effects of the state against private property. It concludes that the private property is generally preferable to the public property when the incentives to innovate and to contain costs must be strong. It also discusses that many economists in the past centered in the paper of prices under socialism and Capitalism, not paying attention to the enormous importance of the property like the source of the incentives of the capitalist to innovate.

Our members also have made a certain work on groups of the business. Lucian To Bebchuk, Reinier Kraakman, and George Triantis (21) examines the adjustments common to typically separate control of the rights of used flow of liquidity in groups of the business: common pyramids, structures of the cross-property, and dual structures of the fairness of the class. They conclude that these have the potential to create very great costs of the agency. Tarun Khanna and Krishna Palepu (22) examine to groups of the business in India and conclude that they are difficult to supervise. Also, the affiliation of the group tends to reduce the foreign institutional investment, although the foreign institutional investors tend to be monitors better than the domestic institutions.

Directive Incentives

An extraordinary paper of Holmstrom in directive incentives is available now in the series of the paper of operation of NBER. (23) in more recent work, George P. Baker and Brian J. Pasillo (24) suggest is academic confusion between and medical on how measuring the force of the incentives of the CEO and how to reconcile the enormous differences in sensitivities of the payment between the executives in big and small companies. They demonstrate that whereas a measurement of the incentives of the CEO (the change of the dollar in abundance of the CEO by change of the dollar in value signs) low by a factor of ten between the companies in the smallest and greater deciles of its sample, another measurement of the CEO that the incentives (the value of stakes of fairness of the CEO) increase in rough the same magnitude. The baker and Corridor discuss the situations under which each measurement is most applicable.

The data on the directive remuneration also can be used to prove optimal theories to contract and of the remuneration. Rajesh K. Aggarwal and Andrew To Samwick (25) discuss that the executives who have more exact signals of their effort that firm operation receive the remuneration that is less sensible to the total operation of the company/signature that other executives. Constant with this, the authors finds that the incentives of the pay-operation of CEOs' are higher by $5,85 by increase $1,000 in abundance of the shareholder who the incentives of the pay-operation of executives with only divisional responsibility.

Debt and fairness

We have quite good models of the outer debt, but no good theory of the outer fairness. Stewart C. Myers (26) explores the necessary conditions for the outer financing of fairness when the initiates -- that is to say, the ones in charge or the industralists -- is self-interested and the liquidity flows are not comprobables. It puts in resistance two mechanisms of the control: a society, which the outer investors can trust the assets by a specified period; and a corporation, which the assets are trusted for an indefinite period but the initiates can be expelled at any time.

Finally, the young Roger H. Gordon and lees (27) revisit the old but still controversial application if the taxes affect the policy of the corporative debt. They find that the taxes have had significant a strong and statistical effect in levels of the debt. In detail, the difference in the done corporative fiscal impositions in front at the moment by greatest against the smallest companies (35 percents against 15 percents) is predicted to induce to companies bigger than they finance of his assets with debt that the smallest companies 8 percents more.


It is not possible, dice limitations of the space, to make justice to range of editions that our members are working ignited. I hope that this sampling is pleasant to him for more. You can have access to the complete arsenal of papers of operation of NBER by the program of the corporative finances in our Web site.

1. R. Porta, F. Lopez-of-Lopez-of-Silanes, To Shleifer, and R. W. Vishny, "law and finances," document of operation of NBER no. 5661, July of 1996.

2. R. Porta, F. Lopez-of-Lopez-of-Silanes, To Shleifer, and R. W. Vishny, "legal determinants of the external finances," document of operation of NBER no. 5879, January of 1997.

3. R. Porta, F. Lopez-of-Lopez-of-Silanes, and To Shleifer, "corporative property around the world," document of operation of NBER no. 6625, June of of 1998; R. Porta, F. Lopez-of-Lopez-of-Silanes, To Shleifer, and R. W. Vishny, "problems of the agency and policies of the dividend around the world," document of operation of NBER no. 6594, June of of 1998, and "protection of the investor and corporative estimate," document of operation of NBER no. 7403, October of 1999.

4. See, for example, to R. G. Hubbard and D. Palia, "they reexamen of the wave of the fusion conglomerate in years 60: An Internal Opinion Of Markets Of Capitals, "Document De Funcionamiento of NBER no. 6539, April Of 1998.

5. D. S. Scharfstein and J. C. Stein, "the dark side of the internal markets of capitals: Divisional Alquiler-Buscar and ineffective investment, "document of operation of NBER no. 5969, marches 1997; D. S. Scharfstein, "the dark side of the internal markets of capitals II: Evidence of diversified conglomerates, "document of operation of NBER no. 6352, January of 1998; R. G. Rajan, H. Servaes, and L. G. Zingales, "the diversity cost: The discount of the diversification and the ineffective investment, "document of operation of NBER no. 6368, January of 1998; F. P. Schlingemann, R. M. Stulz, and R. To Walkling, "to focus corporative and internal markets of capitals," document of operation of NBER no. 7175, June of of 1999.

6. Or Lamont and C. Polk, "the discount of the diversification: Flows of liquidity against returns, "document of operation of NBER no. 7396, October of 1999.

7. S. S. Kortum and J. Lerner, "it makes the innovation of the stimulus of the capital of company" Document De Funcionamiento of NBER no. 6846, December Of 1998.

8. R. K. Morck, D. To Strangeland, and B. Yeung, "they inherited abundance, corporative control, and economic development: The Canadian Disease, "Document De Funcionamiento of NBER no. 6814, November Of 1998.

9. B. R. Holmstrom and J. Tirole, "LAPM: Liquidez-Basado Assets That appraise the Model, "Document De Funcionamiento of NBER no. 6673, August Of 1998.

10. D. W. Diamond and R. G. Rajan, "risk of the liquidity, creation of liquidity, and financial fragility: A theory of document no. 7430 of the banking activities, "operation of NBER, and" a theory of the capital of the bank, "document of operation of NBER no. 7431, December of 1999.

11. To K. Kashyap, R. G. Rajan, and J. C. Stein, "banks like suppliers of the liquidity: An explanation for the coexistence of the loans and Depositar-Tomar, "document of operation of NBER no. 6962, February of 1999.

12. J. K. Kang and R. M. Stulz, "he is the corporative government worthy Banco-Centrado of him? An analysis Cruz-Seccional of the operation of Japanese companies during the deflación of the price of assets, "document of operation of NBER no. 6238, October of 1997.

13. T. Hoshi and To K. Kashyap, "the crisis of banking activities Japanese: Where it did it comes from and how it will finish " Document De Funcionamiento of NBER no. 7250, Julio Of 1999.

14. And J. Kane, "how the financial competition coast outside discipline resistance of the exit by the regulators of Incentivo-Estados bank in conflict," document of operation of NBER no. 7156, June of of 1999.

15. R. S. Kroszner and P. And Strahan, "board bankers: Supervision, conflicts of the interest, and responsibility of the moneylender, "document of operation of NBER no. 7319, August of 1999.

16. Or D. Hart and J. Moore, "in the design of hierarchies: Coordination against the specialization, "document of operation of NBER no. 7388, October of 1999.

17. Or D. Hart and J. Moore, "incompletos contract foundations," document of operation of NBER no. 6726, September of 1998.

18. K. B. Kumar, R. G. Rajan, and L. G. Zingales, "what determines size signs" Document De Funcionamiento of NBER no. 7208, Julio Of 1999.

19. C. G. Holderness, R. S. Kroszner, and D. P. Sheehan, "was good the old good days that? It changes in directive common property from the great depression, "the document of operation of NBER no. 6550, May of 1998.

20. To Shleifer, "state against deprived property," document of operation of NBER no. 6665, July of 1998.

21. L. To Common Bebchuk, R. Kraakman, and G. Triantis, "pyramids, Cruz-Propiedad, and the dual fairness of the class: The costs of the creation and the agency to separate control of the rights of liquidity flow, "document of operation of NBER no. 6951, February of 1999.

22. T. Khanna and K. Palepu, "foreign groups of the business of the market who emerge, investors, and corporative government," document of operation of NBER no. 6955, February of 1999.

23. B. R. Holmstrom, "Problems Directive Incentives -- a Dynamic Perspective," Document De Funcionamiento of NBER no. 6875, January Of 1999.

24. G. P. Baker and B. J. Pasillo, "incentives of the CEO and firm size," document of operation of NBER no. 6868, December of 1998.

25. R. K. Aggarwal and To A. Samwick, "incentives of operation within the companies: The effect of the directive responsibility, "document of operation of NBER no. 7334, September of 1999.

26. S. C. Myers, "Financing De Equidad Of the Outside," Document De Funcionamiento of NBER no. 6561, May Of 1998.

27. R. H. Gordon and And Lee, "the taxes affect the policy of the corporative debt? Evidence of data of the declaration of taxes corporative of the United States, "document of operation of NBER no. 7433, December of 1999.

* Raghuram G. Rajan is director of the program of the corporative finances of the NBER and Jose L. Gidwitz professor of the finances in the university of Chicago.


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