TY  - JOUR
AU  - Albuquerque,Rui
AU  - Wang,Neng
TI  - Agency Conflicts, Investment, and Asset Pricing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13251
PY  - 2007
Y2  - July 2007
UR  - http://www.nber.org/papers/w13251
L1  - http://www.nber.org/papers/w13251.pdf
N1  - Author contact info:
Rui Albuquerque
Boston University
School of Management
595 Commonwealth Avenue
Boston, MA 02215
Tel: 617 3534614
Fax: 617 3536667
E-Mail: ralbuque@bu.edu

Neng Wang
Columbia Business School
3022 Broadway, Uris Hall 812
New York, NY 10027
Tel: 212/854-3869
Fax: 212/662-8474
E-Mail: nw2128@columbia.edu
AB  - 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.
ER  -