Research areas: Financial Regulation and Financial Stability; Comparative Institutions
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Working paper: Proxy Access and Shareholder Wealth: Evidence from a Natural Experiment
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Abstract: The financial crisis of 2008 and the subsequent 2010 Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) led to a revision of shareholder proxy access rules by the SEC in August 2010. Seemingly technical in nature, proxy access - the right for shareholders to nominate a candidates to a public firm's board of directors - lies at the heart of shareholder control and has far-reaching consequences in the balance of power between shareholders and managements.
We use the repeal of the new proxy access rules by the U.S. Court of Appeals as a natural experiment to determine the market's valuation of proxy access reform and its impact on overall shareholder wealth. Our analysis finds that the repeal of the proxy access reform resulted in a decline of valuations for firms with plausibly entrenched managements, smaller firms in which investors could have made greater use of enhanced proxy access, and firms in which more investors qualified to make immediate use of greater proxy access. Further, the results indicate that the intended proxy access reform had rather weak effects: there are no valuation changes for large firms, firms that have just one of the anti-takeover provisions that are said to increase board and managerial entrenchment and firms in which no single investor could have made immediate use of greater proxy access. Finally, we find no evidence that the market expected special interest investors (union and pension funds) to be sufficiently empowered to be able to push through politically motivated, value-destroying policies. We conclude that whenever proxy access was strong enough to affect firm value, it increased shareholder wealth.
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| Working paper: An Economic Theory of Propaganda and Democracy |
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Abstract: Propaganda is communication that aims at influencing the attitude of a group towards some political cause or position. In this spirit, the paper motivates an economic theory of propaganda, in which propaganda is used as an instrument by an elite to seize or to sustain political power. Propaganda is about controlling minds and hence about controlling information; as a result, this theory incorporates unbiased outside information as a source of democracy while propaganda plays the role of determining how much of this outside information is available to society. Channels along which outside information can travel into repressed societies - international trade, tourism and migration, family and news networks or the internet - are associated with decreases of propaganda effectiveness and thereby increases in citizens' demands. Specifically, due to the spread of communication technologies that has led to falling costs of obtaining outside information, the theory argues that propaganda effectiveness has decreased and thus state monopolies on information become more costly, resulting in an increase of political freedom around the world. The theory predicts that the gains/costs of autocracy to the elite, the effectiveness of propaganda and welfare levels abroad are determinants of political freedom.
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