Argument And Contributions. I base my theory of investor protection on Xxxxxxxx and Helpman's (1994, 1996, 2001) model of trade politics. In my model government is the ultimate arbiter of policy, and shareholders and corporate insiders each lobby to promote corporate governance policies that are in their own interests. For shareholders, such policies are assumed to be the high levels of corporate governance that improve the returns on their portfolios, while corporate insiders are assumed to lobby for lower levels of corporate governance that maximize their incomes, including income from rent seeking based on their insider status. The core tension faced by politicians is how to balance the the contributions of interest groups against their own electoral interest in the economic welfare of the voting public. This dissertation is not the first appropriation of the Xxxxxxxx Helpman framework to explain corporate governance outcomes. Bebchuk and Xxxxxx (forthcoming), Xxxxxxx and Volpin (2008) Scarsciatini (2002) have all used variations of this theoretical model to explain similar policy outcomes. The value added of this dissertation is to look deeper into some of the questions that arise from this model. When will government be responsive to the public interest? When will pension funds, considered by many to be shareholders' only real hope of overcoming collective action problems, be able to serve as an effective shareholder lobby? In addressing these question I make two important arguments. First, contemporary corporate governance policymaking is as much about international competition as it is about domestic politics. The fall of Bretton Xxxxx-era capital controls allowed capital to cross borders more easily. This allowed domestic capital to flee markets where it could not earn a sufficient return, placing pressures on governments to cater to the needs of the investor community more so than in the past. Countries began to compete for internationally mobile capital in ways they could not have before, allowing capital starved markets to aid their case by adopting policies in favor of investors' interests. This has important, and generally overlooked, implications for the nature of the public interest in investor protection. The argument that there is a public interest in corporate governance and securities law is effectively one about economic competitiveness. In modern economies with functioning capital markets, retaining investment from domestic sources and attracting capital from for...
