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Agency Conflicts, Investment, and Asset Pricing

Rui Albuquerque () and Neng Wang ()

No 13251, NBER Working Papers from National Bureau of Economic Research, Inc

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 premium, and higher interest rate. Calibrating the model to the Korean economy reveals that perfecting investor protection increases the stock market's value by 22 percent, a gain for which outside shareholders are willing to pay 11 percent of their capital stock.

JEL-codes: E44 G1 G3 O4 (search for similar items in EconPapers)
Date: 2007-07
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-dge, nep-mac and nep-reg
Note: AP CF EFG IFM
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Published as Rui Albuquerue & Neng Wang, 2008. "Agency Conflicts, Investment, and Asset Pricing," Journal of Finance, American Finance Association, vol. 63(1), pages 1-40, 02.

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Journal Article: Agency Conflicts, Investment, and Asset Pricing (2008) Downloads
Working Paper: Agency Conflicts, Investment and Asset Pricing (2005) Downloads
Working Paper: Agency Conflicts, Investment, and Asset Pricing (2005) Downloads
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