This paper has been written for the National Bureau of Economic Research Programme on the

Using very rich and accurate data for Oslo Stock Exchange firms covering the period 1989– 1997, we find that ownership structure matters for economic performance, that insider ownership matters the most, that ownership concentration destroys value, and that direct ownership is superior to investing through intermediaries like institutions and the state. Performance decreases with increasing board size, with the use of non–voting shares, and when firms finance with more debt and pay higher dividends. Although these effects are very robust in single–equation models and thereby suggest that our sample firms have suboptimal corporate governance mechanisms, we find that most of the significant relationships disappear in simultaneous equations models. We suspect that this apparent indication of optimal governance is driven by weak instruments in the simultaneous system.

In the first half of the twentieth century, the UK capital markets were marked by an absence of investor protection; by the end of the century, there was more extensive protection there than virtually anywhere else in the world. The UK therefore provides an exceptional laboratory for evaluating how regulation affects the development of securities markets and corporations. We investigate this question by tracing the ownership and board composition of firms incorporated around 1900 over the subsequent 100 years and comparing the pattern of ownership and control with a sample incorporated around 1960. We find that at the beginning of the century there were active securities markets, firms were able to raise substantial outside equity finance, and there was rapid dispersion of ownership even in the absence of investor protection. The introduction of investor protection in the second half of the century was not associated with greater dispersion of ownership but with more trading in share blocks. We offer an explanation as to how U.K. capital markets could flourish in the absence of investor protection. JEL Classification: G32, G34

Using rich and accurate data from Oslo Stock Exchange firms, we find that corporate governance matters for economic performance, insider ownership matters the most, outside ownership concentration destroys market value, direct ownership is superior to indirect, and that performance decreases with increasing board size, leverage, dividend payout, and the fraction of non–voting shares. These results persist across a wide range of single–equation models, suggesting that governance mechanisms are independent and may be analyzed one by one rather than a bundle. In contrast, our findings depend on the performance measure used and on the choice of instruments in simultaneous equations. The lack of significant relationships in tests allowing for endogeneity may not reflect optimal governance, but rather an underdeveloped theory of how governance and performance interact.

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We measure the impact of individual managerial beliefs on corporate financing. First, managers who believe that their firm is undervalued view external financing as overpriced, especially equity. We show that such overconfident managers use less external finance and, conditional on accessing risky capital, issue less equity than their peers. Second, CEOs with Depression experience have less faith in capital markets and lean excessively on internal financing. Third, CEOs with military experience pursue more aggressive policies, including heightened leverage. CEOs’ press portrayals confirm these differences in beliefs. Overall, measurable managerial characteristics have significant explanatory power beyond traditional capital-structure determinants.

Corresponding author. We thank Swami Kalpathy, Lew Mandell, Rob Nelson, Jacky So, Sam Tiras, and Mengxin Zhao for discussions and constructive comments. We are also indebted to Stu Gillan who participated in the initial stages of this research project. The usual disclaimer applies. Law and Corporate Boards: Evidence from Europe When minority shareholder laws are strong, then minority shareholders should have more power to affect board composition and structure. Therefore, countries with strong minority shareholder laws should have ‘good ’ corporate boards of directors (i.e., one that looks out for minority shareholders ’ bests interests). Assuming that boards with independent directors and fewer directors are indicative of ‘good ’ quality boards, we hypothesize that a country’s law quality and the firm’s board quality are compliments, and thus positively related. In empirical tests, we find that European firms in countries with stronger shareholder laws have (i) more independent directors and (ii) fewer directors. We also provide some evidence on causality; of how strong laws lead to good boards. Our overall findings imply that countries should have strong shareholder laws in order for their firms to have good firm-level governance. Law and Corporate Boards: Evidence from Europe 1.

* The authors would like to thank seminar participants at the 2008 European Corporate Governance Network (ECGN) Workshop in Santander, at the 2008 G-Forum in Dortmund and at the doctoral seminar of the 2008 annual conference of the German Finance Association in Münster for helpful comments. Of course, all remaining errors are our own.

This paper analyses the influence of financial decisions on corporate ownership structure. We derive two models in line with financial theory, which have then been estimated by using a sample of Spanish companies. The panel data methodology and the estimation by the Generalized Method of Moments allow us to eliminate the unobservable heterogeneity and to control for the endogeneity problem. Our findings show that: i) increases in debt lead managers and outside owners to limit the risk they bear by reducing their holdings; ii) both managers and outside owners are encouraged to increase their stakes in the firm in view of higher dividends; and iii) there are higher levels of insider ownership and ownership concentration when a new investment project is undertaken. Additionally, we find that managers behave in accordance with their firms ’ free cash flow and investment opportunities; whereas outside shareholders do not seem to take these two variables into account when choosing their stakes. Overall, this paper contributes to the strand of literature on the determinants of corporate ownership structure in two ways: first, by focusing on the role played by financial decisions;

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