Thursday, September 24, 2009

Important new paper on the regulation of entry

Just published is important work by Simeon Djankov (an occasional LLSV member). If you buy into the LLSV project, he has a useful new addition to the literature in the World Bank Research Observer.

The Regulation of Entry: A Survey
Simeon Djankov

Simplifying entry regulation has been a popular reform since the publication of Djankov and others (2002). The inclusion of business entry indicators in the World Bank's Doing Business project has led to an acceleration in reform: in 2003–08, 193 reforms took place in 116 countries. A large academic literature has followed: 201 academic articles have used the data compiled by Djankov and others (2002) and subsequently by the World Bank. The author identifies three theories as to why some countries impose burdensome entry requirements. He also surveys the literature on the effects of making business entry easier.

Monday, September 21, 2009

Corporate Governance in a Law and Development Context - The Case of Brazil

Bernie Black did some seminal empirical work in explaining corporate governance of Russian firms a few years ago. He extends his work in the law and development of corporate law and governance to another BRIC country, Brazil. Among his coauthors is Erica Gorga, a very good young legal scholar from FGV in Brazil (and lamentably, someone who turned down a job offer from UF last year). Some of the findings in the paper seem counter-intuitive. This paper is a worthwhile read.

Bernard S. Black
University of Texas at Austin - School of Law; McCombs School of Business, University of Texas at Austin; European Corporate Governance Institute (ECGI); Northwestern University - School of Law; Northwestern University - Kellogg School of Management

Antonio Gledson De Carvalho
Fundacao Getulio Vargas School of Business at Sao Paulo

Erica Gorga
Getulio Vargas Foundation Law School at Sao Paulo

July 14, 2009

ECGI - Finance Working Paper
Northwestern Law & Economics Research Paper No. 09-20
U of Texas Law, Law and Economics Research Paper No. 152
McCombs Research Paper Series

A central issue in corporate governance research is the extent to which “good” governance practices are universal (one size mostly fits all) or whether they depend on country and firm characteristics. We report evidence here, from a case study of Brazil, supporting the second view. We use a survey of Brazilian firms’ governance practices at year-end 2004 to construct a corporate governance index, and show that the overall index and subindices for ownership, board procedure, and minority shareholder rights predict higher lagged Tobin’s q. A disclosure subindex is important by itself, but loses significance when it must compete with other subindices in the same regression. In contrast to studies in other countries, we find a negative association between board independence and Tobin’s q. Firm characteristics also matter: governance is associated with market value for manufacturing (but not nonmanufacturing) firms, large (but not small) firms, and high-growth (but not low-growth) firms. Our results suggest that country characteristics importantly influence which aspects of governance are associated with firm market value, and at which firms that association is found. They support a flexible approach to governance, which leaves ample room for firm choice, rather than a more regulatory approach.

Thursday, September 10, 2009

Latin American and Caribbean Economic Association (LACEA) Annual Meeting in Buenos Aires

Upcoming is the 14th Annual LACEA Meeting will take place in Buenos Aires, on October 1st -3rd, hosted by Universidad Torcuato Di Tella. There are some interesting paper presentations on law and development issues.

Law and Development - Where Do We Go From Here?

Starting soon, we will link to our forthcoming symposium appearing in the Northwestern Law Reviews' online Colloquy. We had a great series of posts on the future of law and development from a number of different perspectives.

Rule of Law Paper by Magen

There are a large number of critiques of the law and development enterprise, many of which say essentially the same thing: transplanting institutions is difficult, we have little knowledge about what works, and existing efforts have do a poor job of conceptualizing and measuring the rule of law. A recent paper by Amichai Magen, The Rule of Law and its Promotion Abroad: Three Problems of Scope, 45 Stanfurd Journal of International Law 51 (2009), does a particularly good job of synthesizing and reframing the problems. He articulates three problems of scope: conceptual scope, intellectual scope and empirical scope. It is a lucid discussion that places rule of law promotion in broader literatures of comparative and international politics. In the discussion of empirical scope, for example, he calls attention to the various mechanisms of external influence that have little to do with foreign aid per se. Only when we understand these mechanisms can we begin to see how intervention might or might not work.

Wednesday, September 9, 2009

Whither Chinese Constitutionalism?

China’s constitution has been described (by Professor Donald Clarke) as the least important document in the Chinese legal system. But constitutional discourse is clearly becoming more important in Chinese law politics, as highlighted by the recent high profile arrest and subsequent release of Xu Zhiyong, a lawyer associated with the Open Constitution Initiative. Like other communist documents, the Chinese constitution is usually described as serving programmatic and ideological rather than constitutionalist ends. That is, rather than providing for enforceable rules constraining government, the constitution is used either to bless changes that have already occurred or to announce new policies to be achieved in the future. One frequent pattern, found in the former Soviet Union and in China until 1982, was that new constitutions would be adopted with changes in leadership, as new leaders sought to announce their presence.

The 1982 Constitution, adopted shortly after Deng Xiaoping consolidated power and launched China’s modernization program, is an interesting document in this regard. Law played a central role in Deng’s thinking as he sought to provide greater institutional order to underpin China’s development. The 1982 Constitution de-emphasizes the Chinese Communist Party and nominally places the Constitution above all organizations in the country. Post-Deng leaders have modified the constitution through amendment, rather than replacement, preserving ideological continuity with Deng. Amendments have been used to mark ideological developments. For example, in 1988, the Constitution was revised to make reference to a privatesector to complement the “socialist public economy.” The 1993 amendments added the phrase “socialism with Chinese characteristics” to the preamble and introduced the “socialist market economy,” thus incorporating Deng Xiaoping’s formula into the document. In 1999, a reference to the recently deceased Deng was incorporated into the preamble. In 2004, the Constitution was amended to guarantee private property rights and provide for compensation for expropriated land, an important signal for both foreign investors and China’s own market sector. Human rights are also included, reflecting the Party’s ideological pushback against critics. In addition, in keeping with the tradition of each Chinese leader’s leaving his mark on the Constitution, Jiang Zemin’s theory of the Three Represents was introduced into the preamble. This provided ideological coverage for inclusion of the business class (“advanced productive forces”). It seems highly likely that a future amendment will incorporate the latest formula of the Harmonious Society that is the mark of current leaders, Hu Jintao and Wen Jiabao.

My forthcoming co-authored book, The Endurance of National Constitutions, speculates that China’s 1982 Constitution might ultimately play a role not unlike that of Mexico’s 1917 Constitution. Mexico under the PRI regime had a constitution that embodied ideological continuity, but not constitutionalism. Over the long period of PRI rule, however, the constitution was frequently amended to co-opt and include new social forces as they arose. This led to gradually increasing congruence between the formal promises of the text and actual social practice. Eventually, when Mexico democratized in the late 1990s, the constitution was preserved and now operates as a more significant constraint on political actors, with both left and right wing parties relying on it in particular instances. The story shows the gradually increasing importance of a constitution within an authoritarian regime, under conditions in which there is a need for ideological continuity. To be sure, the analogy between China and Mexico is speculative, and there are important structural and ideological differences between the CCP and the PRI. But the Mexico outcome is at least one possible model for China. More on the Chinese Constitution can be found in an excellent forthcoming book edited by Stephanie Balme and Michael Dowdle. No doubt we’ll have more to say about the topic when that book hits the shelves.

(cross-posted at