Agency Conflicts, Investment, and Asset Pricing

Rui Albuquerue and Neng Wang ()
Authors registered in the RePEc Author Service: Rui Albuquerque ()

Journal of Finance, 2008, vol. 63, issue 1, pages 1-40

Abstract: The separation of ownership and control allows controlling shareholders to pursue private benefits. We develop an analytically tractable dynamic stochastic general equilibrium model to study asset pricing and welfare implications of imperfect investor protection. Consistent with empirical evidence, the model predicts that countries with weaker investor protection have more incentives to overinvest, lower Tobin's "q", higher return volatility, larger risk premia, and higher interest rate. Calibrating the model to the Korean economy reveals that perfecting investor protection increases the stock market's value by 22%, a gain for which outside shareholders are willing to pay 11% of their capital stock. Copyright 2008 by The American Finance Association.

Date: 2008
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Related works:
Working Paper: Agency Conflicts, Investment and Asset Pricing (2005)
Working Paper: Agency Conflicts, Investment, and Asset Pricing (2007)
Working Paper: Agency Conflicts, Investment, and Asset Pricing (2005)
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