Corporate Governance and Risk-Taking

Better investor protection could lead corporations to undertake riskier but value-enhancing investments. For example, better investor protection mitigates the taking of private benefits leading to excess risk-avoidance. Further, in better investor protection environments, stakeholders like creditors, labor groups, and the government are less effective in reducing corporate risk-taking for their self-interest. However, arguments can also be made for a negative relationship between investor protection and risk-taking. Using a cross-country panel and a U.S.-only sample, we find that corporate risk-taking and firm growth rates are positively related to the quality of investor protection.     

INTERSTATE BANKING AND ANTITRUST LAWS: HISTORY OF PUBLIC POLICIES TO PROMOTE BANKING COMPETITION

Over the past several years, antitrust laws' significance as a public policy to promote competition in banking has diminished. Deregulation has intensified competition so much that it has made antitrust laws nonbinding constraints, even during a merger movement of extraordinary proportions. Deregulation and attenuating antitrust raise a question as to whether a distinctive competitive policy for commercial banks should exist as it has in the past.
Two earlier policies are identified and reviewed in this paper: (1) free banking, which in several forms existed from the 1830s to the early 1930s, and (2) antitrust, which became relevant during the early 1960s. Experience under both policies illuminates the interaction between competition and regulation in banking. Such experience indicates that the effects of current competitive policy must be evaluated within the developing regulatory environment. Partially evaluating current policy within this context suggests that new charter requirements should be reformulated and that large bank mergers should be limited. So long as a distinctive regulatory system exists, a distinctive competitive policy for banks is needed.