Government-Business Relationship and International Corporate Finance

Julan Du
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Julan Du: The Chinese University of Hong Kong

No 67, Royal Economic Society Annual Conference 2002 from Royal Economic Society

Abstract: This paper shows both theoretically and empirically the importance of bureaucratic quality in shaping the pattern of corporate finance in different countries. It argues that firm management under corrupt and interventionist governments is particularly powerful in expropriating outside investors because they can threaten to withdraw their government relationship specific human capital that is central to firm survival and growth. The prevalence of concentrated ownership, relative reliance on bank financing and bank ownership of firms under corrupt and interventionist governments are various means of overcoming the management expropriation. This paper also proposes a new synthesis of the legal and political theories: a broad-based legal approach.

Date: 2002-08-29
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Persistent link: https://EconPapers.repec.org/RePEc:ecj:ac2002:67

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