Agency conflicts, investment, and asset pricing
By: Rui Albuquerque, Neng Wang.
Contributors: Wang, Neng.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13251.; Working paper series (National Bureau of Economic Research) -- working paper no. 13251.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 70
Subjects: Assets (Accounting) -- Prices; Portfolio management; Minority stockholders -- Legal status, laws, etc; Equilibrium (Economics) -- Econometric models; Korea -- Economic conditions -- 21st century
Description: 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.
Notes: "July 2007"

Includes bibliographical references (p. 53-60).

Also available in PDF from the NBER world wide web site (www.nber.org).