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Aldo Musacchio
Associate Professor
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Phone
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(617)496-0995
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E-mail
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Featured
Work
Firms in developed markets find
themselves competing with the so-called national champions (firms
that receive entitlements, mostly subsidized credit from the
government). Most of these national champions get either subsidized
credit or equity investments from development banks by proposing
long-term projects with large capital investment that need funding
that would not be funded by the market. The idea of having the
government supporting those projects is to solve a market failure.
The government is substituting for financial intermediaries that
are not doing their job properly.
In this paper, my coauthors and I
use evidence from Brazil to look at what happens to firm
performance, investment, and financial expenditures when companies
get subsidized credit from the Brazilian National Bank of Economic
and Social Development, known as BNDES. BNDES is one of the largest
development banks in the world and there is no comprehensive study
tracking the effects of its loans and equity investments. We find that
BNDES’ loans and equity do not seem to affect firm-level
operational performance and investment decisions, although they do
reduce firm-level cost of capital due to the governmental subsidies
accompanying loans. Next, examining the selection process through
which BNDES’ capital is allocated to firms, we find that BNDES
apparently selects firms with good operational performance but also
provides more capital to firms with political connections (measured
as campaign donations to politicians who won an election). Yet, we
do not find evidence that BNDES is systematically bailing out
firms. In general, BNDES appears to be generally selecting firms
with capacity to repay their loans, as regular commercial banks
would do.
Download
What
happens when the government buys a minority equity share in a firm
in Brazil? (pdf)
See the paper I wrote with Sergio
Lazzarini on the effects of equity purchases by the BNDES, the
National Bank of Economic and Social Development of Brazil. We find
positive effects (higher return on assets and higher capital
investment), with no discernible effect on say debt levels. We also
discard any strong selection effect. That is we find no evidence
that the BNDES selected either the most profitable firms to invest
in or distressed firms. We argue that because firms in Brazil face
significant capital constraints, government purchases of equity can
alleviate such constraints. We also find that there are no positive
effects when the BNDES purchases equity in companies that belong to
a business group, especially if the company belongs to a
state-owned business group. Our findings suggest that perhaps
having the government as a minority shareholder in a company
reduces some of the corruption, principal-agent, and in general
moral hazard problems we typically observe in state-owned
enterprises, but that those positive effects disappear when
companies are part of a business group.
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Online Debate on State Capitalism
Aldo
Musacchio vs. Ian Bremmer
I was asked to defend State Capitalism
as a viable alternative to liberal market economies. A tough job!
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Also, see my book on the history of
corporate governance and financial development in Brazil:
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Experiments
in Financial Democracy [pdf]
Corporate Governance and Financial Development in Brazil, 1882–1950
This book is a detailed historical description of the evolution
of corporate governance and stock markets in Brazil in the late
nineteenth and twentieth centuries. The analysis details the
practices of corporate governance, in particular the rights that
shareholders to restrict the actions of managers, and how that
shaped different approaches to corporate finance over time. The
book argues that companies are not necessarily constrained by the
institutional framework in which they operate. In the case of
Brazil, even if the protections for investors included in national
laws were relatively weak before 1940, corporate charters contained
a series of provisions that protected minority shareholders against
the abuses of large shareholders, managers, or other corporate
insiders. These provisions ranged from limits on the number of
votes a single shareholder could have to restrictions on the number
of family members who could act as directors simultaneously. The
investigation uses the Brazilian case to challenge some of the key
findings of a recent literature that argues that legal systems
(e.g., common vs. civil law) shape the extent of development of
stock and bond markets in different nations. The book argues that
legal systems alone cannot determine the course of stock and bond
markets over time, because corporate governance practices and the
size of these markets vary significantly over time, while the basic
principles of legal systems are stable.
Papers on Financial Markets and Globalization
"Foreign Entry and the Mexican Banking
System, 1997-2007." (with Stephen Haber) Harvard Business
School Working Paper, No. 10-114, June 2010.
Featured Economic History Papers
"Big BRICs, Weak Foundations: The Beginning
of Public Elementary Education in Brazil, Russia, India, and China."
(with Latika Chaudhary,
Steven Nafziger, and Se Yan)
Harvard Business School Working Paper, No. 11-083, February
2011. (Revised July 2011.)
"Endowments, Fiscal Federalism, and the Cost
of Capital for States: Evidence from Brazil, 1891-1930 [pdf]."
(with André C. Martínez Fritscher) Financial History Review
17, no. 1 (April 2010).
Please also visit my teaching page
Globalization
and Emerging Markets
***FOR MORE PUBLICATIONS VISIT MY HBS PAGE****
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© Aldo Musacchio, 2009. Praia Vermelha,
Rio de Janeiro
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