Aldo Musacchio

Associate Professor of Business Administration (Leave of Absence)

Aldo Musacchio has been in the faculty of HBS since 2004. He is currently an associate professor in the Business, Government, and International Economy Unit (BGIE) and a Faculty Research Fellow at the National Bureau of Economic Research (NBER).

Professor Musacchio’s first research projects focused on how companies can adopt corporate governance practices that protect investors in relatively adverse legal and institutional environments. His book, Experiments in Financial Democracy (Cambridge University Press, 2009) studies the mechanisms Brazilian firms used to follow high corporate governance standards before 1950, when the legal protections for investors were relatively weak. He argues that companies are not trapped in the legal systems in which they operate. They can overcome their institutional environments through better practices and by designing bylaws that compensate for the weak legal environment.

Professor Musacchio’s current research project with Professor Sergio Lazzarini, of Insper in Brazil, looks at the new ways in which states intervene in the economy. They are writing a book manuscript, tentatively entitled Leviathan in Business, that examines the new forms of state capitalism. Among other things, the book contains chapters on the effects of having the state as a minority shareholder, the role of development banks in capital formation, the importance of selecting well CEOs of state-owned enterprises (SOEs), and analyzing whether listing SOEs is enough to tie the governments hands, among others.

Finally, Professor Musacchio is also developing a series of cases and articles looking at best practices in state-owned enterprises. The objective of this research project is to provide lessons to improve the performance of large state-owned companies, especially in contexts where governments face political constraints to privatize such companies in full or in part, or where managers of state-owned enterprises cannot freely hire and fire workers or charge market rates for their services or products.

Aldo Musacchio has a B.A. in economics (with highest honors) from ITAM, in Mexico, and a Ph. D. in Economic History of Latin America from Stanford University. He is a faculty associate at the Weatherhead Center for International Affairs and a member of the Brazil Studies Committee and the Mexican Studies Committee, all at Harvard University. In 2012, he won the First Prize of the Manuel Espinosa Yglesias Prize for his research on foreign banks in Mexico (together with Stephen Haber) and was awarded the 2012 Prize for Professiona/Academic Meirt by the Alumni Association of ITAM (EX-ITAM). In 2007 he was selected as one of the “30 most promising professionals in their thirties (30 promesas en los treintas)” by Mexican business magazine Expansion. Musacchio is a member of the board of trustees of LASPAU: Academic and Professional Programs for the Americas, a nonprofit organization dedicated to advancing higher education in the Americas. Aldo Musacchio obtained a B.A. in Economics with highest honors from ITAM in Mexico City. He lives with his wife in the South End, Boston, Massachusetts.

Featured Work

Publications

Books

  1. Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond

    In this book we describe the transformation of state capitalism from a model in which governments owned and ran corporations and broadly controlled the allocation of financial resources into two new varieties of state capitalism: Leviathan as a majority and as a minority investor. In this book we study the implications of such transformation using detailed data from Brazil between 1976 and 2009. In the Leviathan as a majority investor governments have started to list state-owned enterprises, have selected professional managers to run them, and have given them more financial autonomy. We argue that the transformation from owner and manager to majority shareholder has reduced many agency problems commonly faced by SOEs, but has not reduced the temptation governments face to intervene in the operation of large strategic enterprises. In the Leviathan as a minority shareholder mode, governments have small equity ownership in corporations and in general do not intervene in management. We find evidence that such equity investments allow firms to alleviate capital constraints and increase capital expenditures. Yet we also find instances in which governments use their minority positions to intervene in the management of firms, especially in natural resource industries.

    Keywords: State capitalism; state-owned enterprises; industrial policy; development banks; Capitalism; Financial Markets; corporate governance; corporate governance theory; CEO effects; Public Sector; Economic Systems; Financial Institutions; Corporate Governance; Business and Government Relations; Governing and Advisory Boards; State Ownership; Privatization; Public Ownership; Emerging Markets; Banking Industry; Mining Industry; Energy Industry;

    Citation:

    Musacchio, Aldo, and Sergio G. Lazzarini. Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond. Cambridge, MA: Harvard University Press, 2014. View Details
  2. Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882-1950

    In Experiments in Financial Democracy, I challenge the idea that it was colonial institutions that sent Brazil, a civil law country, down a particular path of corporate governance and finance. Detailed archival research reveals significantly different patterns of corporate governance and finance between the beginning of the twentieth century and the 1990s. In order to attract investors, the founders of companies organized before 1910 often included in the statutes stronger protections for small shareholders than what was mandated by law. The most important of these protections were maximum vote provisions that capped the number of votes a single shareholder (and sometimes even a single proxy voter) could exercise during a shareholder meeting. An analysis of the shareholder lists of nearly 100 Brazilian companies revealed a correlation between corporate statutes that protected small shareholders and less concentrated ownership and control. I maintain that the corporate governance rules in the past help to explain the peak in equity market development observed between 1890 and 1914 (by some measures, equity markets were more developed then than they are today).

    Keywords: Private Equity; Investment; Corporate Governance; Governing Rules, Regulations, and Reforms; Business History; Business and Shareholder Relations; Brazil;

Journal Articles

  1. Colonial Institutions, Commodity Booms, and the Diffusion of Elementary Education in Brazil

    We show how the decentralization of fiscal responsibility among Brazilian states between 1889 and 1930 promoted an unequal expansion of public schooling. We document how the variation in state export tax revenues, product of commodity booms, explains improvements in expenditures on education per capita, literacy, and schools per children. Yet we also find that such improvements did not take place in states that had more slaves before abolition or those that cultivated cotton during colonial times. Thus, we explain radical changes in the ranking of states as a consequence of changes in fiscal institutions and their interaction with colonial institutions.

    Keywords: institutions; education; Economic History; Education; Development Economics; Policy; Brazil;

    Citation:

    Musacchio, Aldo, Andre C. Martinez Fritscher, and Martina Viarengo. "Colonial Institutions, Commodity Booms, and the Diffusion of Elementary Education in Brazil." Journal of Economic History (forthcoming). View Details
  2. Leviathan as a Minority Shareholder: Firm-level Implications of State Equity Purchases

    In many countries, firms face institutional voids that raise the costs of doing business and thwart entrepreneurial activity. We examine a particular mechanism to address those voids: minority state ownership. Due to their minority nature, such stakes are less affected by the agency distortions commonly found in full-fledged state-owned firms. Using panel data from publicly traded firms in Brazil, where the government holds minority stakes through its development bank (BNDES), we find a positive effect of those stakes on firms' return on assets and on the capital expenditures of financially-constrained firms with investment opportunities. However, these positive effects are substantially reduced when minority stakes are allocated to business group affiliates and when local institutions develop. Therefore, we shed light on the firm-level implications of minority state ownership, a topic that has received scant attention in the strategy literature.

    Keywords: State ownership; Performance; business groups; development banks; State capitalism; Performance; State Ownership; Brazil;

    Citation:

    Inoue, Carlos F. K. V., Sergio G. Lazzarini, and Aldo Musacchio. "Leviathan as a Minority Shareholder: Firm-level Implications of State Equity Purchases." Academy of Management Journal 56, no. 6 (December 2013). View Details
  3. In Strange Company: The Puzzle of Private Investment in State-Controlled Firms

    A large legal and economic literature describes how state-owned enterprises (SOEs) suffer from a variety of agency and political problems. Less theory and evidence, however, have been generated about the reasons why state-owned enterprises listed in stock markets manage to attract investors to buy their shares (and bonds). In this Article, we examine this apparent puzzle and develop a theory of how legal and extralegal constraints allow mixed enterprises to solve some of these problems. We then use three detailed case studies of state-owned oil companies—Brazil's Petrobras, Norway's Statoil, and Mexico's Pemex—to examine how our theory fares in practice. Overall, we show how mixed enterprises have made progress to solve some of their agency problems, even as government intervention persists as the biggest threat to private minority shareholders in these firms.

    Keywords: corporate governance; state-owned enterprises; oil companies; Corporate Governance; Business and Shareholder Relations; Energy Industry; Brazil; Mexico; Norway;

    Citation:

    Pargendler, Mariana, Aldo Musacchio, and Sergio G. Lazzarini. "In Strange Company: The Puzzle of Private Investment in State-Controlled Firms." Cornell International Law Journal 46, no. 3 (Fall 2013): 569–610. View Details
  4. Does the Law and Finance Hypothesis Pass the Test of History?

    For the body of work known as the law and finance literature, the development of financial markets and the concentration of ownership across countries is to a large extent the consequence of the legal system nations created or inherited decades or hundreds of years ago. Despite the seemingly historical nature of this explanation, most of the body of work supporting the law and finance hypothesis has been ahistorical. This paper summarises the business history literature and provides evidence on investor protection and financial development over the long run that challenges the main tenets of the law and finance literature.

    Keywords: law; finance; business history; Financial Markets; Financial History; Business and Shareholder Relations; Law; Financial Services Industry; United States; United Kingdom; Brazil;

    Citation:

    Musacchio, Aldo, and John D. Turner. "Does the Law and Finance Hypothesis Pass the Test of History?" Special Issue on Law and Finance: A Business History Perspective Business History 55, no. 4 (2013): 524–542. View Details
  5. Foreign Entry and the Mexican Banking System, 1997-2007

    What is the impact of foreign bank entry on the pricing and availability of credit in developing economies? The Mexican banking system provides a quasi-experiment to address this question because in 1997 the Mexican government radically changed the laws governing the foreign ownership of banks: the foreign market share therefore increased five-fold between 1997 and 2007. We construct and analyze a panel of Mexican bank financial data covering this period and find no evidence that foreign entry increases the availability of credit. We also find that switching from domestic to foreign ownership is associated with a decrease in non-performing loans and an increase in interest rate spreads, suggesting that foreign concerns bought domestic banks that had been making loans with low interest rates to parties that had a low probability of repayment.

    Keywords: Banks and Banking; Ownership; Foreign Direct Investment; Laws and Statutes; Developing Countries and Economies; Banking Industry; Mexico;

    Citation:

    Haber, Stephen, and Aldo Musacchio. "Foreign Entry and the Mexican Banking System, 1997-2007." Economía 13, no. 1 (Fall 2012): 13–37. View Details
  6. Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China

    Our paper provides a comparative perspective on the development of public primary education in four of the largest developing economies circa 1910: Brazil, Russia, India, and China (BRIC). These four countries encompassed more than 50% of the world's population in 1910, but remarkably few of their citizens attended any school by the early 20th century. We present new, comparable data on school inputs and outputs for BRIC drawn from contemporary surveys and government documents. Recent studies emphasize the importance of political decentralization and relatively broad political voice for the early spread of public primary education in developed economies. We identify the former and the lack of the latter to be important in the context of BRIC, but we also outline how other factors such as factor endowments, colonialism, serfdom, and, especially, the characteristics of the political and economic elite help explain the low achievement levels of these four countries and the incredible amount of heterogeneity within each of them.

    Keywords: Perspective; Growth and Development; Middle School Education; Developing Countries and Economies; Data and Data Sets; Geographic Location; Public Administration Industry; Brazil; Russia; India; China;

    Citation:

    Chaudhary, Latika, Aldo Musacchio, Steven Nafziger, and Se Yan. "Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China." Explorations in Economic History 49, no. 2 (April 2012): 221–240. View Details
  7. Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930

    There is a large literature looking at the determinants of country risk (defined as the difference between the yield of a sovereign's bonds and the risk-free rate). In this paper, we contribute to the discussion by arguing that an important explanatory factor is the impact that commodities have on the government's capacity to pay. We use a newly created database with state-level fiscal and risk premium data for Brazil states between 1891 and 1930 to show that in Brazilian states that exported commodities that were in high in demand (e.g., rubber and coffee) the state governments ended up having higher tax revenues per capita and, thus, lower cost of capital. We also explain that the variation in revenues per capita was both a product of the variation in natural endowments and a commodity boom that had asymmetric effects among states. These two effects generated variation in revenues per capita at the state level thanks to the extreme form of fiscal decentralization that the Brazilian government adopted in the Constitution of 1891, which gave states the sole right to tax exports. We also use indices of export prices for each state as instruments for revenues per capita. Our instrumental variable estimates confirm our results that states with commodities that had higher price increases had lower risk premia.

    Keywords: Bonds; Performance Capacity; Taxation; Revenue; Governance; Geographic Location; Trade; Price; Cost of Capital; Risk and Uncertainty; Public Administration Industry; Brazil;

    Citation:

    Martinez Fritscher, Andre C., and Aldo Musacchio. "Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930." Financial History Review 17, no. 1 (April 2010). (Winner of the Gerry Feldman Young Scholar Prize for the best paper of (a) young scholar(s) of the European Association of Banking and Financial History, 2010-2011.) View Details
  8. Drawing Links Between Corporate Governance and Networks: Bankers in the Corporate Networks of Brazil, Mexico, and The United States Circa 1910

    Keywords: Corporate Governance; Networks; Banks and Banking; Business History; Brazil; Mexico;

    Citation:

    Musacchio, Aldo. "Drawing Links Between Corporate Governance and Networks: Bankers in the Corporate Networks of Brazil, Mexico, and The United States Circa 1910." Entreprises D'Amerique Latine. Entreprises et histoire 54, no. 1 (April 2009): 16–36. View Details
  9. The Return of State-Owned Enterprises: Should We Be Afraid?

    The global financial crisis of 2008-2009 has prompted many industrialized states worldwide to increase their stakes in private corporations. This wave of partial nationalizations has come amidst full-scale expropriations in developing countries such as Venezuela, Bolivia, and Ecuador. Does this signal a return of "state capitalism?" If so, what should we expect of the state-owned enterprises (SOEs) that spring back into economic life? Should we be afraid that this return to state capitalism will bring back the practices of the large, inefficient SOEs that countries privatized during the 1980s and 1990s? From a look at the popular press, one certainly gets the impression that there is a return of "state capitalism," as if state intervention in industrial activity actually went away for a significant period of time. Moreover, many observers of the recent wave of nationalizations and government-backed bank capitalizations are afraid that a return to the wasteful state-owned enterprises of the past is imminent. In this essay we propose two alternative views. First, we stress the resilience of state-owned enterprises, which have been around for more than one hundred years in the world's capitalist economies. In fact, state interventions similar to those of today were seen in the pre-World War I period, an era known by some economic historians as "the first big wave of globalization." Second, we argue that there is no reason to believe that the SOEs of the twenty-first century will be as inefficient as those of the 1970s and 1980s. The world has changed much since former British Prime Minister Margaret Thatcher first began implementing large-scale privatizations. In fact, we document some cases of present-day competitive SOEs and explain some of the conditions that made them efficient, even in comparison to their private counterparts. We do not argue that all SOEs are efficient or that it is optimal to have government ownership of banks and other companies. What we aim to show is that the return of state capitalism is likely to be different this time since, we believe, the environment is different and many SOEs have learned the lessons of the past.

    Keywords: History; Private Ownership; State Ownership; Financial Crisis; Business and Government Relations;

    Citation:

    Musacchio, Aldo, and Francisco Flores-Macias. "The Return of State-Owned Enterprises: Should We Be Afraid?" Online Edition Harvard International Review (March 2009). View Details
  10. Laws versus Contracts: Legal Origins, Shareholder Protections, and Ownership Concentration in Brazil, 1890–1950

    This article examines some of the institutional conditions that facilitated the development of equity markets in Brazil. A critical factor was the addition of protections for investors to corporate bylaws, which enabled relatively large corporations in Brazil to attract investors in large numbers. By availing themselves of this strategy, the firms generated a relatively low concentration of ownership before 1910. Archival evidence, such as company statutes and shareholder lists, reveals that the addition of voting rights to their bylaws, particularly maximum vote provisions and graduated voting scales (which stipulated that less-than-proportional votes increase in parallel with shareholdings), allowed many Brazilian corporations to balance the relative voting power of their small and large investors. In companies that made such arrangements, the concentration of ownership and control was sharply lower than in the average company. Judging by the Brazilian companies examined for this article, it also appears that the concentration of control was significantly lower before 1910 than it is today.

    Keywords: Voting; Equity; Financial Markets; Investment; Governance Controls; Business History; Ownership Stake; Brazil;

    Citation:

    Musacchio, Aldo. "Laws versus Contracts: Legal Origins, Shareholder Protections, and Ownership Concentration in Brazil, 1890–1950." Business History Review 82, no. 3 (fall 2008): 445–473. View Details
  11. Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil

    Does a legal tradition adopted in the distant past constrain a country's ability to provide the protection that investors need for financial markets to develop? This paper contributes to the literature that studies the connection between law and finance by looking at the relationship between legal origin and the development of bond markets. The paper shows that there is too much variation over time in terms of bond market size, creditor protections, and court enforcement of bond contracts to assume that the adoption of a legal system can constrain future financial development. The paper examines in detail the evolution of bond markets in Brazil, a French civil law country, and provides preliminary results of similar variation for a small cross-section of countries.

    Keywords: Bonds; Financial Markets; Investment; Code Law; Contracts; Law Enforcement; Size; Brazil;

    Citation:

    Musacchio, Aldo. "Can Civil Law Countries Get Good Institutions? Lessons from the History of Creditor Rights and Bond Markets in Brazil." Journal of Economic History 68, no. 1 (March 2008): 80–108. (***Winner of the Arthur H. Cole Prize for best paper in the Journal of Economic History, 2007-2008***.) View Details
  12. Bankers, Industrialists, and Their Cliques: Elite Networks in Mexico and Brazil during Early Industrialization

    The historiographies of Mexico and Brazil have implicitly stated that business networks were crucial for the initial industrialization of these two countries. Recently, differing visions on the importance of business networks have arisen. In the case of Mexico, the literature argues that entrepreneurs relied heavily on an informal institutional structure to obtain necessary resources and information. In contrast, the recent historiography of Brazil suggests that after 1890 the network of corporate relations became less important for entrepreneurs trying to obtain capital and concessions, once the institutions promoted financial markets and easy entry for new businesses. Did entrepreneurs in Brazil and Mexico organize their networks differently to deal with the different institutional settings? We test whether in Mexico businessmen relied more on networks and other informal arrangements to do business than in Brazil. Our hypothesis is confirmed by three related results: 1) the total number of connections (i.e., the density of the network) was higher in Mexico than Brazil; 2) In Mexico there was one dense core network, while in Brazil we find fairly dispersed clusters of corporate board interlocks; and most importantly, 3) politicians played a more important role in the Mexican network of corporate directors than their counterparts in Brazil. Interestingly, even though Brazil and Mexico relied on very different institutional structures, both countries grew at similar rates of growth between 1890 and 1913. However, the dense and exclusive Mexican network might have ended up increasing the social and political tensions that led to the Mexican Revolution (1910–1920).

    Keywords: Business and Government Relations; Networks; Business History; Market Entry and Exit; Emerging Markets; Entrepreneurship; Financial Markets; Supply and Industry; Banks and Banking; Brazil; Mexico;

    Citation:

    Musacchio, Aldo, and Ian Read. "Bankers, Industrialists, and Their Cliques: Elite Networks in Mexico and Brazil during Early Industrialization." Enterprise & Society 8, no. 4 (December 2007): 842–880. View Details
  13. Law and Finance in Historical Perspective: Politics, Bankruptcy Law, and Corporate Governance in Brazil, 1850-2002

    Keywords: Law; Finance; History; Perspective; Government and Politics; Insolvency and Bankruptcy; Corporate Governance; Brazil;

    Citation:

    Musacchio, Aldo. "Law and Finance in Historical Perspective: Politics, Bankruptcy Law, and Corporate Governance in Brazil, 1850-2002." Journal of Economic History 67, no. 2 (June 2007): 502–506. (Dissertation summary.) View Details
  14. NORMAS CONTABLES BANCARIAS EN MÉXICO. Una guía de los cambios para legos diez años después de la crisis bancaria de 1995

    Citation:

    Del Angel, Gustavo, Stephen Haber, and Aldo Musacchio. "NORMAS CONTABLES BANCARIAS EN MÉXICO. Una guía de los cambios para legos diez años después de la crisis bancaria de 1995." Trimestre económico 73, no. 4 (October/December 2006). View Details
  15. Un nuevo índice de precios para México, 1886-1929 [A New Price Index for Mexico, 1886-1929]

    We present new price indices for the period 1886-1929. These indices have several advantages with respect to the previous ones: i) they cover the whole period with the same methodology, and by reaching 1929 these series can be joined with contemporary price indices, ii) they include more products, iii) they use price data more homogeneous and reliable, iv) they are monthly price indices, v) their methodology is explicit, it follows clear and precise rules, and vi) they obey the basic consistency criteria that economic theory predicts, both from a theoretical and from an statistical point of view.

    Keywords: Price; Inflation and Deflation; Macroeconomics; Mexico;

    Citation:

    Gómez-Galvarriato, Aurora, and Aldo Musacchio. "Un nuevo índice de precios para México, 1886-1929 [A New Price Index for Mexico, 1886-1929]." Trimestre económico 67, no. 265 (January–March 2000): 47–91. View Details

Book Chapters

  1. Legal Origin vs. the Politics of Creditor Rights: Bond Markets in Brazil, 1850-2002

    This paper explores the question: Do institutions persist over time and determine current economic outcomes? Specifically, does the adoption or inheritance of a legal tradition in the past determine the subsequent course of institutional and financial development? This paper attempts to answer this question by examining the history of bond markets and creditor rights in Brazil as well as evidence of creditor rights protections in a cross-section of common and civil law countries. The tested hypotheses are from the law and finance literature, which argues that legal origin determines both the extent of investor protections and level of financial market development (La Porta, Lopez de Silanes, Shleifer and Vishny, 1997, 1998, 2000). I test three hypotheses. First, I test whether the idea that legal origin exerts a persistent effect on financial market size can be defended. The significant variation I find in bond market size and creditor protections over 150 years does not support the notion of persistent effects of legal origin. Second, I test whether a path-dependent effect of legal origin can explain the level of creditor protections in Brazil. Finding, following the methodology of La Porta et al. (1998), that creditor rights vary too much over time to be determined by legal origin. I propose that the time-variance of investor protections is better explained by the existence of a political economy channel. Finally, I test whether the relationship posited by the law and finance literature between legal origin and creditor rights holds for a (small) cross-section of countries in the past. I present evidence that in 1910 legal origin did not explain the differences we observe across countries today. In fact, for the few countries I study, French civil law countries had, on average, stronger creditor rights that common law countries.

    Keywords: History; Rights; Common Law; Code Law; Financial Markets; Credit; Economy; Government and Politics; Financial Services Industry;

    Citation:

    Musacchio, Aldo. "Legal Origin vs. the Politics of Creditor Rights: Bond Markets in Brazil, 1850-2002." Chap. 2 in The Politics of Financial Development, edited by Stephen Haber, Douglass C. North, and Barry Weingast, 259–286. Stanford, CA: Stanford University Press, 2007. View Details
  2. The International Rubber Market, 1870-1930

    Keywords: Rubber Industry;

    Citation:

    Frank, Zephyr, and Aldo Musacchio. "The International Rubber Market, 1870-1930." Chap. 10 in From Silver to Cocaine: Latin American Commodity Chains and the Building of the World Economy, 1500-2000, edited by Steven Topik, Carlos Marichal, and Zephyr Frank, 271–299. Durham: Duke University Press, 2006. View Details

Working Papers

  1. These Are the Good Old Days: Foreign Entry and the Mexican Banking System

    In 1997, the Mexican government reversed long-standing policies and allowed foreign banks to purchase Mexico's largest commercial banks and relaxed restrictions on the founding of new, foreign-owned banks. The result has been a dramatic shift in the ownership structure of Mexico's banks. For instance, while in 1991 only 1% of bank assets in Mexico were foreign owned, today they control 74% of assets. In no other country in the world has the penetration of foreign banks been as rapid or as far-reaching as in Mexico. In this work we examine some of the important implications of foreign bank entry for social welfare in Mexico. Did liberalization lead to an increase (or decrease) in the supply of credit? Did liberalization lead to an increase (or decrease) in the cost of credit? Did liberalization lead to an increase (or decrease) in the stability of the banking system? In order to answer these questions, we must first ask, "increase (or decrease), measured on what basis?" There are, in fact, two distinct conceptual frameworks through which one can assess the impact of foreign bank entry. One is concerned with measuring the short-run impacts of foreign entry on credit abundance, pricing, and observable stability using reduced form regressions. The other is an institutional economics conception of how to measure performance. It is focused on understanding whether foreign entry gave rise to difficult-to-reverse changes in the political economy of bank regulation, which will affect competition and stability in the long-term, outside the period that may be observed empirically. We employ both conceptions in this paper.

    Keywords: Market Entry and Exit; Balance and Stability; Foreign Direct Investment; Banks and Banking; Society; Economics; Banking Industry; Mexico;

    Citation:

    Haber, Stephen, and Aldo Musacchio. "These Are the Good Old Days: Foreign Entry and the Mexican Banking System." Harvard Business School Working Paper, No. 13-062, January 2013. (NBER Working Paper Series, No. 18713, January 2013.) View Details
  2. Leviathan in Business: Varieties of State Capitalism and Their Implications for Economic Performance

    In this paper we document the extent and reach of state capitalism around the world and explore its economic implications. We focus on governmental provision of capital to corporations—either equity or debt—as a defining feature of state capitalism. We present a stylized distinction between two broad, general varieties of state capitalism: one through majority control of publicly traded companies (e.g., state-controlled SOEs) and a hybrid form that relies on minority investments in companies by development banks, pension funds, sovereign wealth funds, and the government itself. We label these two alternative modes Leviathan as a majority investor and Leviathan as a minority investor, respectively. Next we differentiate between these two modes by describing their key fundamental traits and the conditions that should make each mode more conducive to development and superior economic performance.

    Keywords: State capitalism; state-owned enterprises; development banks; sovereign wealth funds; Economic Systems; State Ownership; Sovereign Finance; Business and Government Relations; Investment;

    Citation:

    Musacchio, Aldo, and Sergio G. Lazzarini. "Leviathan in Business: Varieties of State Capitalism and Their Implications for Economic Performance." Harvard Business School Working Paper, No. 12-108, June 2012. View Details
  3. Mexico's Financial Crisis of 1994-1995

    This paper explains the causes leading to the Mexican crisis of 1994-1995 (known as "The Tequila Crisis"), and its short- and long-term consequences. It argues that excessive enthusiasm on the part of foreign investors, not based on Mexico's fundamentals, and weak regulation of the banking system built the vulnerabilities that left Mexico exposed to a sudden change in investor appetite for Mexican securities in 1994. Political violence in Mexico and changes in monetary policy in the United States then led to radical changes in investor perceptions of the future of the country and to a balance of payments and banking crisis. The paper then explains how the crisis unraveled and describes the US bailout of the Mexican government in 1995. Since the exchange rate crisis of December of 1994 then translated into a banking crisis in 1995, the chapter ends examining the subsequent development of the Mexican banking system.

    Keywords: Financial Crisis; Foreign Direct Investment; Banks and Banking; Government and Politics; Currency Exchange Rate; Banking Industry; Mexico;

    Citation:

    Musacchio, Aldo. "Mexico's Financial Crisis of 1994-1995." Harvard Business School Working Paper, No. 12-101, May 2012. View Details
  4. Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China

    Our paper provides a comparative perspective on the development of public primary education in four of the largest developing economies circa 1910: Brazil, Russia, India and China (BRIC). These four countries encompassed more than 50% of the world's population in 1910, but remarkably few of their citizens attended any school by the early 20th century. We present new, comparable data on school inputs and outputs for BRIC drawn from contemporary surveys and government documents. Recent studies emphasize the importance of political decentralization and relatively broad political voice for the early spread of public primary education in developed economies. We identify the former and the lack of the latter to be important in the context of BRIC, but we also outline how other factors such as factor endowments, colonialism, serfdom, and, especially, the characteristics of the political and economic elite help explain the low achievement levels of these four countries and the incredible amount of heterogeneity within each of them.

    Keywords: History; Middle School Education; Data and Data Sets; Residency Characteristics; Integration; Perspective; Surveys; Geographic Location; Welfare or Wellbeing; Government and Politics; Developing Countries and Economies; Growth and Development; China; India; Brazil; Russia;

    Citation:

    Chaudhary, Latika, Aldo Musacchio, Steven Nafziger, and Se Yan. "Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China." NBER Working Paper Series, No. 17852, February 2012. View Details
  5. What Do Development Banks Do? Evidence from Brazil, 2002-2009

    While some authors view development banks as an important tool to alleviate capital constraints in scarce credit markets and unlock productive investments, others see those banks as conduits of cheap loans to politically connected firms that could obtain capital elsewhere. We test these contrasting views using data on loans and equity allocations in the period 2002-2009 by the Brazilian National Development Bank (BNDES), one of the largest development banks in the world. In our fixed effect regressions, we find that BNDES' allocations 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.

    Keywords: Cost of Capital; Credit; Equity; Banks and Banking; Financing and Loans; Investment; Government and Politics; Data and Data Sets; Resource Allocation; Markets; Performance; Banking Industry; Brazil;

    Citation:

    Lazzarini, Sergio G., Aldo Musacchio, Rodrigo Bandeira-de-Mello, and Rosilene Marcon. "What Do Development Banks Do? Evidence from Brazil, 2002-2009." Harvard Business School Working Paper, No. 12-047, December 2011. View Details
  6. Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003

    There is a growing literature comparing the performance of private vs. state-owned companies. Yet, there is little work examining the effects of having the government as a minority shareholder of private companies. We conduct such a study using data for 296 publicly traded corporations in Brazil, looking at the effects of equity purchases by the National Bank for Economic and Social Development (BNDES) on firm performance between 1995 and 2003. Our fixed-effects regressions show that BNDES's purchases of equity lead to increases in return on assets and investment in fixed assets. Finally, we find that the positive effect of BNDES's equity purchases is reduced when the target firms belong to state-owned and private pyramidal groups. Therefore, we argue that having development banks owning minority stakes can have a positive effect on performance as long as they promote long-term investments and are shielded from governmental interference and potential minority shareholder expropriation.

    Keywords: Investment; Ownership Stake; State Ownership; Private Ownership; Performance Evaluation; Business and Government Relations; Business and Shareholder Relations; Banking Industry; Brazil;

    Citation:

    Lazzarini, Sergio G., and Aldo Musacchio. "Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003." Harvard Business School Working Paper, No. 11-073, January 2011. (**Winner of the Prize for the Best Paper Presented at the Strategic Management Society Special Conference, Rio de Janeiro, 2011.) View Details
  7. Law and Finance c. 1900

    How persistent are the effects of legal institutions adopted or inherited in the distant past? A substantial literature argues that legal origins have persistent effects that explain clear differences in investor protections and financial development around the world today (La Porta et al., 1998, 1999 and passim). This paper examines the persistence of the effects of legal origins by examining new estimates of different indicators of financial development in more than 20 countries in 1900 and 1913. The evidence presented does not yield robust results that can sustain the hypothesis of persistence effects of legal origin, but it is not powerful enough to reject it either. Then the paper examines whether there were systematic differences in the extent of investor protections across countries, since that is the main channel through which legal origin affects financial development, and shows that all the evidence supports the idea of relative convergence in corporate governance practices across legal families circa 1900. The paper concludes that, if the evidence presented is representative, the variation observed in financial development around the world today is likely a product of events of the twentieth century rather than a consequence of long-term (and persistent) differences occasioned by legal traditions.

    Keywords: Law; Finance; Corporate Governance; Practice; Growth and Development;

    Citation:

    Musacchio, Aldo. "Law and Finance c. 1900." NBER Working Paper Series, No. 16216, July 2010. View Details
  8. Foreign Entry and the Mexican Banking System, 1997-2007

    What is the impact of foreign bank entry on the pricing and availability of credit in developing economies? The Mexican banking system provides a quasi-experiment to address this question because in 1997 the Mexican government radically changed the laws governing the foreign ownership of banks: the foreign market share therefore increased five-fold between 1997 and 2007. We construct and analyze a panel of Mexican bank financial data covering this period and find no evidence that foreign entry increases the availability of credit. We also find that switching from domestic to foreign ownership is associated with a decrease in non-performing loans and an increase in interest rate spreads, suggesting that foreign concerns bought domestic banks that had been making loans with low interest rates to parties that had a low probability of repayment.

    Keywords: Developing Countries and Economies; Credit; Banks and Banking; Financing and Loans; Foreign Direct Investment; Market Entry and Exit; Business and Government Relations; Banking Industry; Mexico;

    Citation:

    Haber, Stephen, and Aldo Musacchio. "Foreign Entry and the Mexican Banking System, 1997-2007." Harvard Business School Working Paper, No. 10-114, June 2010. View Details
  9. Bank Accounting Standards in Mexico. A Layman's Guide to Changes 10 Years after the 1995 Bank Crisis

    After the 1995 crisis, the Mexican banking system experienced significant changes in bank accounting standards. Most of these changes took place between 1996 and 2001, and had a significant impact in the structure and interpretation of financial information of banks. This document explains the major changes on bank accounting, their purpose and structure, and discusses their impact on financial information reported by Mexican banks. It also provides the English equivalent of the major accounting terms used by Mexican banks. The main purpose of this document is to provide a standardized guide to better understand financial information produced before and after the crisis, within the current context of internationalization of Mexican banks' ownership.

    Keywords: Globalized Firms and Management; Accounting; Standards; Financial Crisis; Banks and Banking; Banking Industry; Mexico;

    Citation:

    Del Angel, Gustavo A., Stephen Haber, and Aldo Musacchio. "Bank Accounting Standards in Mexico. A Layman's Guide to Changes 10 Years after the 1995 Bank Crisis." Harvard Business School Working Paper, No. 08-090, April 2008. View Details
  10. Political Instability and Untimely Dissolution: Partnerships, Corporations, and the Mexican Revolution, 1910-1929

    Citation:

    Musacchio, Aldo, Aurora Gomez-Galvarriato, and Rodrigo Parral. "Political Instability and Untimely Dissolution: Partnerships, Corporations, and the Mexican Revolution, 1910-1929." Harvard Business School Working Paper, No. 08-092, April 2008. View Details
  11. Organizational Choice in a French Civil Law Underdeveloped Economy: Partnerships, Corporations and the Chartering of Business in Mexico, 1886-1910

    Citation:

    Gómez-Galvarriato, Aurora, and Aldo Musacchio. "Organizational Choice in a French Civil Law Underdeveloped Economy: Partnerships, Corporations and the Chartering of Business in Mexico, 1886-1910." Harvard Business School Working Paper, No. 05-024, October 2004. View Details

Cases and Teaching Materials

  1. Qatar: Energy for Development

    Despite being the richest country in the world on a per capita basis, for analysts Qatar belongs in the group of emerging markets considered "frontier markets." This case analyzes the strengths and weaknesses of the development strategy of this small country as set forth by Emir Hamad bin Khalifa Al Thani, who ruled from 1995 to 2013. In 2013, for the first time in Qatar's history, Emir Hamad passed on control of the government to his son Tamim peacefully and Tamim, as Emir, promised to continue with the development strategy of economic diversification set forth by his father. Yet, it is not clear if the ambitious investments in infrastructure, education, tourism and real estate Emir Hamad made were enough to steer the economy away from its dependence on gas exports.

    Keywords: frontier markets; state-owned enterprises; State capitalism; sovereign wealth funds; Energy Industry; economic development; Sovereign Finance; State Ownership; Development Economics; Energy Industry; Middle East; Qatar;

    Citation:

    Musacchio, Aldo, Colin Donovan, Samir Mikati, Rami Sarafa, and Abdulla AlMisnad. "Qatar: Energy for Development." Harvard Business School Case 714-003, September 2013. (Revised November 2013.) View Details
  2. Education in Brazil: Waiting for a Revolution

    This case describes the situation of the education system in Brazil circa 2012. The case discusses first some of the problems of the Brazilian education system. Then, the case summarizes the findings of a recent study of high performing schools in Brazil and outlines policies that may increase the quality of education in that country. Finally, the case examines some of the reasons that made the Korean system one of the most successful in the world. The objective of the case is to discuss possible policies that may help the Brazilian government to improve the quality of education at a national level.

    Keywords: education; human capital; quality of education; federalism; elementary education; Education; Human Capital; Education Industry; Brazil; Korean Peninsula;

    Citation:

    Musacchio, Aldo, and Alejandra Meraz Velasco. "Education in Brazil: Waiting for a Revolution." Harvard Business School Case 713-095, May 2013. View Details
  3. The IPO of Agricultural Bank of China Exhibits (CW)

    Citation:

    Musacchio, Aldo. "The IPO of Agricultural Bank of China Exhibits (CW)." Harvard Business School Spreadsheet Supplement 713-702, March 2013. View Details
  4. The IPO of Agricultural Bank of China (ABC) (A) and (B) (TN)

    Citation:

    Musacchio, Aldo. "The IPO of Agricultural Bank of China (ABC) (A) and (B) (TN)." Harvard Business School Teaching Note 713-070, March 2013. View Details
  5. Silver Lake and Private Equity in Brazil: Carnaval or Calamity? (TN)

    Citation:

    Musacchio, Aldo. "Silver Lake and Private Equity in Brazil: Carnaval or Calamity? (TN)." Harvard Business School Teaching Note 713-076, March 2013. View Details
  6. State Capitalism and State-Owned Enterprise Reform Instructors Note

    Keywords: State capitalism;

    Citation:

    Musacchio, Aldo. "State Capitalism and State-Owned Enterprise Reform Instructors Note." Harvard Business School Module Note 713-067, March 2013. View Details
  7. Sovereign Wealth Funds: Barbarians at the Gate or White Knights of Globalization? (TN)

    Keywords: sovereign wealth funds; Sovereign Finance; Globalization; Emerging Markets;

    Citation:

    Musacchio, Aldo. "Sovereign Wealth Funds: Barbarians at the Gate or White Knights of Globalization? (TN)." Harvard Business School Teaching Note 713-075, March 2013. View Details
  8. Pemex (TN) (A) and (B)

    Citation:

    Musacchio, Aldo. "Pemex (TN) (A) and (B)." Harvard Business School Teaching Note 713-072, February 2013. View Details
  9. Angola and the Resource Curse (TN)

    Keywords: Resource management; African history; angola; dutch disease; least developed countries;

    Citation:

    Musacchio, Aldo, Eric Werker, and Ian Cornell. "Angola and the Resource Curse (TN)." Harvard Business School Teaching Note 713-002, October 2012. View Details
  10. GEM 15: Country Development Strategies in 15 Statistics

    Keywords: country analysis; country development strategies; macroeconomics;

    Citation:

    Musacchio, Aldo, and Eric Werker. "GEM 15: Country Development Strategies in 15 Statistics." Harvard Business School Technical Note 713-025, August 2012. (Revised October 2012.) View Details
  11. Indian Railways: Building a Permanent Legacy? (TN)

    Citation:

    Khanna, Tarun, and Aldo Musacchio. "Indian Railways: Building a Permanent Legacy? (TN) ." Harvard Business School Teaching Note 713-019, August 2012. View Details
  12. Banco Ciudad (TN) (A) and (B)

    Citation:

    Musacchio, Aldo. "Banco Ciudad (TN) (A) and (B)." Harvard Business School Teaching Note 713-071, March 2013. View Details
  13. Vale: Global Expansion in the Challenging World of Mining (TN) (A) and (B)

    Keywords: globalization; mining; Brazil; emerging markets; Mining; Mining Industry; Brazil; South America;

    Citation:

    Khanna, Tarun, and Aldo Musacchio. "Vale: Global Expansion in the Challenging World of Mining (TN) (A) and (B)." Harvard Business School Teaching Note 713-069, March 2013. View Details
  14. Pemex (B): The Rebound?

    Keywords: turnarounds; oil prices; energy; Energy Industry; oil companies; state-owned enterprises; corporate governance; Energy; Corporate Governance; Energy Industry; Mexico; North America;

    Citation:

    Musacchio, Aldo, Noel Maurer, and Regina Garcia-Cuellar. "Pemex (B): The Rebound?" Harvard Business School Supplement 713-052, December 2012. (Revised March 2013.) View Details
  15. Pemex (A): In a Free Fall?

    Keywords: turnarounds; oil prices; energy; state-owned enterprises; oil companies; national oil companies; Energy; Privatization; State Ownership; Corporate Governance; Energy Industry; Mexico; North America;

    Citation:

    Maurer, Noel, and Aldo Musacchio. "Pemex (A): In a Free Fall?" Harvard Business School Case 713-051, December 2012. (Revised January 2013.) View Details
  16. The Korean Model of Shared Growth, 1960-1990

    Keywords: History; Equality and Inequality; Income Characteristics; Economic Growth; Policy; Economy; South Korea;

    Citation:

    Musacchio, Aldo, Rafael Di Tella, and Jonathan Schlefer. "The Korean Model of Shared Growth, 1960-1990." Harvard Business School Case 712-052, March 2012. (Revised April 2012.) View Details
  17. Introduction to Business, Government, and the International Economy (BGIE)

    Keywords: Business and Government Relations; International Relations; Trade;

    Citation:

    Duggan, Catherine S. M., Aldo Musacchio, and Matthew C. Weinzierl. "Introduction to Business, Government, and the International Economy (BGIE)." Harvard Business School Course Overview Note 710-045, January 2010. (Revised January 2013.) View Details
  18. Dubai: Debt, Development, and Crisis (TN) (A), (B), and (C)

    Citation:

    Musacchio, Aldo. "Dubai: Debt, Development, and Crisis (TN) (A), (B), and (C)." Harvard Business School Teaching Note 712-057, April 2012. View Details
  19. State Capitalism and State-Owned Enterprise Reform

    The note examines state capitalism in the twenty-first century. It introduces a series of topics and cases related to state capitalism, such as the debate about the causes of inefficiency in state owned enterprises, possible ways of turning them around, as well as a short discussion of sovereign wealth funds (SWFS), national champions, development banks, etc. The note explicitly links some of these topics to HBS cases designed to dive deeper into each subject.

    Keywords: State capitalism; state-owned enterprises; business government relations; political economy; turnarounds; Economic Systems; State Ownership; Business and Government Relations;

    Citation:

    Musacchio, Aldo. "State Capitalism and State-Owned Enterprise Reform." Harvard Business School Module Note 712-028, April 2012. (Revised March 2013.) View Details
  20. The IPO of Agricultural Bank of China (ABC) (A)

    Keywords: Initial Public Offering; Banking Industry; China;

    Citation:

    Jin, Li, Aldo Musacchio, and Hania Dawood. "The IPO of Agricultural Bank of China (ABC) (A)." Harvard Business School Case 712-006, October 2011. (Revised February 2012.) View Details
  21. Pakistan: Is Foreign Aid Helping or Hindering Development?

    Keywords: Development Economics; Developing Countries and Economies; Foreign Direct Investment; Pakistan;

    Citation:

    Musacchio, Aldo, Ada Chu, Shahnawaz Nawabi, Jonathan Schlefer, and Emil Staykov. "Pakistan: Is Foreign Aid Helping or Hindering Development?" Harvard Business School Case 712-005, September 2011. (Revised July 2013.) View Details
  22. Banco Ciudad (A): Who is the Owner?

    Keywords: State Ownership; Banking Industry; Argentina;

    Citation:

    Musacchio, Aldo, Gustavo Herrero, and Cintra Scott. "Banco Ciudad (A): Who is the Owner?" Harvard Business School Case 712-029, November 2011. (Revised February 2012.) View Details
  23. Silver Lake and Private Equity in Brazil: Carnaval or Calamity?

    Keywords: Private Equity; Capital Markets; Strategy; Brazil;

    Citation:

    Musacchio, Aldo, and Stephen J. Goldstein. "Silver Lake and Private Equity in Brazil: Carnaval or Calamity?" Harvard Business School Case 712-004, September 2011. (Revised January 2012.) View Details
  24. Immersion Experience Program Note: Brazil

    Companies visited: Allied Advanced Technologies, BrasilAgro, Clearsale, Dafiti.com.br, Globo, Groupon Brazil, Insper, JGP Investimentos, LIGHT, Maracana Stadium, Petrobras S.A., Vale S.A.

    Keywords: Brazil;

    Citation:

    Musacchio, Aldo, Thales S. Teixeira, Stephanie Galloway, Cassie Bordeau, and Felix Oberholzer-Gee. "Immersion Experience Program Note: Brazil." Harvard Business School Publishing, 2011. View Details
  25. Banco Ciudad (B): Transformation at Work

    Keywords: Banks and Banking; Transformation;

    Citation:

    Musacchio, Aldo, Gustavo Herrero, and Cintra Scott. "Banco Ciudad (B): Transformation at Work." Harvard Business School Supplement 712-030, November 2011. View Details
  26. The IPO of Agricultural Bank of China (ABC) (B)

    Keywords: Banks and Banking; China;

    Citation:

    Jin, Li, Aldo Musacchio, and Huw Edwards. "The IPO of Agricultural Bank of China (ABC) (B)." Harvard Business School Supplement 712-008, October 2011. View Details
  27. Veracity Worldwide in Syria: Assessing Political Risk in a Volatile Environment

    Keywords: Risk and Uncertainty; Government and Politics; Business and Government Relations; Syria;

    Citation:

    Musacchio, Aldo. "Veracity Worldwide in Syria: Assessing Political Risk in a Volatile Environment." Harvard Business School Case 712-009, October 2011. View Details
  28. Sovereign Wealth Funds: Barbarians at the Gate or White Knights of Globalization?

    Keywords: Emerging Markets; Finance; Investment; Globalization;

    Citation:

    Musacchio, Aldo, and Emil Staykov. "Sovereign Wealth Funds: Barbarians at the Gate or White Knights of Globalization?" Harvard Business School Case 712-022, October 2011. View Details
  29. Veracity Worldwide: Evaluating FCPA-Related Risks in West Africa

    Keywords: Risk and Uncertainty; Business and Government Relations; Crime and Corruption; Emerging Markets; Africa;

    Citation:

    Musacchio, Aldo. "Veracity Worldwide: Evaluating FCPA-Related Risks in West Africa." Harvard Business School Case 712-010, September 2011. View Details
  30. China and the Yuan-Dollar Exchange Rate

    This note explains how the People's Bank of China (PBOC) manages (some say manipulate) the dollar-yuan exchange rate. It discusses briefly the process of sterilization in China and the possible costs for the PBOC. Therefore, the note summarizes some of the main challenges the PBOC faces to contain inflation in China and to keep Chinese exports competitive.

    Keywords: Currency Exchange Rate; China;

    Citation:

    Musacchio, Aldo. "China and the Yuan-Dollar Exchange Rate." Harvard Business School Background Note 711-110, June 2011. (Revised August 2011.) View Details
  31. Mexico: Crisis and Competitiveness

    In 2010, the bicentennial anniversary of Mexico's revolution against Spain, President Felipe Calderon hoped he could orchestrate several crucial reforms that Mexico needed. Mexico had not grown much over the course of the last decade, losing competitiveness to China and other Asian countries. Several of its institutions, including labor, education, healthcare, energy, and antitrust seemed uncompetitive. But with a weaker peso and greater governmental attention to infrastructure, Calderon hoped that Mexico's higher-tech exports could recapture U.S. market share and make headway in Europe and Latin America.

    Keywords: Economic Growth; Trade; Governing Rules, Regulations, and Reforms; Competitive Strategy; Competitive Advantage; Mexico;

    Citation:

    Musacchio, Aldo, Richard H.K. Vietor, and Regina Garcia-Cuellar. "Mexico: Crisis and Competitiveness." Harvard Business School Case 710-058, April 2010. (Revised May 2013.) View Details
  32. Indian Railways: Building a Permanent Legacy (B)?

    Supplement to case 710008.

    Keywords: Transportation Industry; India;

    Citation:

    Musacchio, Aldo, Tarun Khanna, and Rachna Tahilyani. "Indian Railways: Building a Permanent Legacy (B)?" Harvard Business School Supplement 711-083, June 2011. View Details
  33. Brazil: Leading the BRICs? (TN)

    Teaching Note for 711024.

    Keywords: Brazil;

    Citation:

    Daemmrich, Arthur A., and Aldo Musacchio. "Brazil: Leading the BRICs? (TN)." Harvard Business School Teaching Note 711-025, March 2011. (Revised June 2012.) View Details
  34. Inequality in Brazil

    This case examines the evolution of inequality in Brazil in the last few years and generates two debates. First, the case discusses inequality and whether it is a problem or not for capitalist societies, in this case Brazil. Second, the case discusses some of the policies the Brazilian government has used to attack poverty and inequality.

    Keywords: Economic Growth; Economic Systems; Policy; Government and Politics; Business and Government Relations; Poverty; Equality and Inequality; Brazil;

    Citation:

    Musacchio, Aldo. "Inequality in Brazil." Harvard Business School Case 711-086, March 2011. (Revised May 2011.) View Details
  35. Sherritt Goes to Cuba (A): Political Risk in Unchartered Territory

    Ian Delaney, CEO of Sherritt, a primarily a mining company, visited Cuba in the early 1990s to negotiate a deal to export nickel for their Canadian refineries. The case describes the difficulties of doing business in Cuba and the challenges Delaney overcame to turn Sherritt into a large diversified holding company that operates in mining, oil, utilities, telecomm, hotels, and others. Delaney did this while managing a relationship with an authoritarian regime with an anti-capitalist discourse.

    Keywords: Business Conglomerates; Joint Ventures; Multinational Firms and Management; Growth and Development Strategy; Risk Management; Emerging Markets; Business and Government Relations; Mining Industry; Canada; Cuba; United States;

    Citation:

    Musacchio, Aldo, and Jonathan Schlefer. "Sherritt Goes to Cuba (A): Political Risk in Unchartered Territory." Harvard Business School Case 711-001, September 2010. (Revised April 2011.) View Details
  36. Mexico: Crisis and Competitiveness (TN)

    Teaching Note for 710058.

    Keywords: Governing Rules, Regulations, and Reforms; Currency; Government and Politics; Trade; Infrastructure; Mexico; China; Europe; Latin America;

    Citation:

    Vietor, Richard H.K., and Aldo Musacchio. "Mexico: Crisis and Competitiveness (TN)." Harvard Business School Teaching Note 711-011, November 2010. View Details
  37. Colombia: Strong Fundamentals, Global Risk

    By mid-2009 Colombian President Alvaro Uribe had ended decades of virtual civil war and strengthened the business climate, but he faced tough economic challenges. Though he had instituted prominent market reforms and brought inflation down sharply, Colombia seemed stuck in a middle ground, industrially behind Brazil or Chile but ahead of poorer Latin American countries. Traditional exports—coal, coffee, oil—still comprised more than half the total, while manufactured exports comprised only a fifth. Public investment in transport and other infrastructure—a perpetual obstacle to growth in mountainous Colombia—remained too low. A major ambition of Uribe or his possible like-minded successor was to secure U.S. Congressional approval of a free trade agreement signed in 2006. But would it really help Colombia diversify its economy? Colombia already had access to the U.S. market but still had a relatively closed economy compared with neighbors such as Mexico or Chile.

    Keywords: Developing Countries and Economies; Economic Growth; Macroeconomics; Trade; Global Strategy; Infrastructure; Business and Government Relations; Colombia;

    Citation:

    Musacchio, Aldo, Richard H. K. Vietor, Jonathan Schlefer, and Carolina Camacho. "Colombia: Strong Fundamentals, Global Risk." Harvard Business School Case 710-012, January 2010. (Revised October 2010.) View Details
  38. Iceland (A)

    In May of 2008, a team of sovereign debt analysts at Moody's had to decide whether to downgrade the country's sovereign long-term debt from Aaa to Aa1 or lower. Investor sentiment toward Iceland had changed radically in March, and the Moody's team was fearful that the situation could spiral out of control. The Moody's team knew that carry traders increased Iceland's vulnerability to a confidence crisis because they were quick to liquidate their holdings at the first sign of distress. The plunge in the Icelandic Krona since the beginning of 2008 also forced the Icelandic people to confront a decision: would joining the European Union (EU) protect Iceland from capricious swings in investor sentiment? What, if anything, should Iceland do to avoid a future crisis?

    Keywords: Decision Choices and Conditions; Financial Crisis; Borrowing and Debt; Currency; Financial Condition; Sovereign Finance; European Union; Iceland;

    Citation:

    Musacchio, Aldo. "Iceland (A)." Harvard Business School Case 709-011, August 2008. (Revised October 2010.) View Details
  39. Vale: Global Expansion in the Challenging World of Mining

    In 2009 the management of Vale, a Brazilian diversified mining company and the largest iron ore producer in the world, was under pressure from at least two fronts. First, the emergence of China as the most important consumer of iron ore in the last few years had changed the pricing system for iron ore from long-term contracts based on negotiated "benchmark prices" to contracts based on spot prices, usually forcing mining companies to pay for shipping. Second, for Brazil's charismatic president, Lula, a former union leader, Vale's layoffs during the global financial crisis and its perceived move away from Brazil (as Vale increased its exports to China and purchased Chinese vessels to ship iron ore to Asia) were reasons to start an open campaign to pressure Vale and Roger Agnelli to invest in integrated steel mills in Brazil. In October of 2009, the CEO of Vale, Agnelli was going to meet with Lula and had to decide what to do to attenuate these political pressures. What could Agnelli do to deal with political pressures at home? Was the purchase of large vessels to ship iron ore to Asia a good decision at a time when the shipping industry had spare capacity?

    Keywords: Financial Crisis; Investment; Global Strategy; Risk Management; Market Entry and Exit; Business and Government Relations; Competitive Strategy; Mining Industry; Brazil;

    Citation:

    Khanna, Tarun, Aldo Musacchio, and Ricardo Reisen de Pinho. "Vale: Global Expansion in the Challenging World of Mining." Harvard Business School Case 710-054, April 2010. (Revised October 2010.) View Details
  40. Sherritt Goes to Cuba (B): Dealing with Political Risk Under Raul Castro

    Keywords: Risk Management; Government and Politics; International Relations; Cuba;

    Citation:

    Musacchio, Aldo, and Jonathan Schlefer. "Sherritt Goes to Cuba (B): Dealing with Political Risk Under Raul Castro." Harvard Business School Supplement 711-002, September 2010. View Details
  41. Sherritt Goes to Cuba (C): Cuba country data

    Keywords: Data and Data Sets; Cuba;

    Citation:

    Musacchio, Aldo, and Jonathan Schlefer. "Sherritt Goes to Cuba (C): Cuba country data." Harvard Business School Supplement 711-003, September 2010. View Details
  42. Angola and the Resource Curse

    Since emerging from decades of conflict in 2002, Angola has been growing at a scorching double-digit rate, led by its oil industry. But the nation remains beset with seemingly intractable problems: immense inequality, low life expectancy, a non-diversified economy, and constant grumblings of corruption. The global financial crisis and subsequent fall in state oil revenue drives a loan-seeking Angola towards either the IMF, who demand extensive reforms, or the Chinese, who seek to take a direct stake in the nation's recovery. The case explores the dynamics of post-conflict recovery as well as the challenges associated with a reliance on oil wealth, including the resource curse and Dutch disease.

    Keywords: Crime and Corruption; Developing Countries and Economies; Financial Crisis; Borrowing and Debt; Financial Institutions; Globalized Economies and Regions; Policy; Government Administration; Emerging Markets; Natural Environment; Angola;

    Citation:

    Musacchio, Aldo, Eric D. Werker, and Jonathan Schlefer. "Angola and the Resource Curse." Harvard Business School Case 711-016, September 2010. View Details
  43. Petrobras in Ecuador (TN) (A), (B) and (C)

    Teaching Note for 309107.

    Keywords: Brazil; Ecuador;

    Citation:

    Musacchio, Aldo, and Lena G. Goldberg. "Petrobras in Ecuador (TN) (A), (B) and (C)." Harvard Business School Teaching Note 311-043, August 2010. View Details
  44. Dubai: Debt, Development, and Crisis (B)

    On November 25, 2009, the city state of Dubai stunned markets by announcing that Dubai World, its flagship state holding company, would seek a six month "standstill" on at least $4 billion U.S. dollars of its $26 billion in debt obligations. This case describes Dubai's development strategy in detail and narrates how, as part of that strategy, a series of state-owned holding companies accumulated billions of dollars in debt. The A case ends as Sheikh Ahmed bin Saeed, chairman of Dubai's Fiscal Committee, has to decide what to do about the financial troubles of Dubai World and other state-owned holding companies. The case presents Sheikh Ahmed bin Saeed having to decide among three options: The Dubai government can guarantee the debt, they can renegotiate the debt, or walk away (i.e., default). The B case describes the decision and the reactions to this decision around the world and presents a new decision on the part of bond holders of Dubai's state-owned holding companies. The C case briefly analyzes the advantages and disadvantages of Dubai's bankruptcy procedures, both for investors and for the holding companies of Dubai.

    Keywords: Borrowing and Debt; Development Economics; Crisis Management; Dubai;

    Citation:

    Musacchio, Aldo, Andrew Christopher Goodman, and Claire K. Qureshi. "Dubai: Debt, Development, and Crisis (B)." Harvard Business School Supplement 710-070, June 2010. (Revised July 2012.) View Details
  45. Dubai: Debt, Development, and Crisis (A)

    On November 25, 2009, the city state of Dubai stunned markets by announcing that Dubai World, its flagship state holding company, would seek a six-month "standstill" on at least $4 billion U.S. dollars of its $26 billion in debt obligations. This case describes Dubai's development strategy in detail and narrates how, as part of that strategy, a series of state-owned holding companies accumulated billions of dollars in debt. The (A) case ends as Sheikh Ahmed bin Saeed, chairman of Dubai's Fiscal Committee, has to decide what to do about the financial troubles of Dubai World and other state-owned holding companies. The case presents Sheikh Ahmed bin Saeed having to decide among three options: the Dubai government can guarantee the debt, they can renegotiate the debt, or they can walk away (i.e., default). The (B) case describes the decision and the reactions to this decision around the world and presents a new decision on the part of bond holders of Dubai's state-owned holding companies. The (C) case briefly analyzes the advantages and disadvantages of Dubai's bankruptcy procedures, both for investors and for the holding companies of Dubai.

    Keywords: Accounting; Decision Choices and Conditions; Development Economics; Financial Crisis; Borrowing and Debt; Financial Strategy; State Ownership; Business and Government Relations; Dubai;

    Citation:

    Musacchio, Aldo, Andrew Christopher Goodman, and Claire K. Qureshi. "Dubai: Debt, Development, and Crisis (A)." Harvard Business School Case 710-069, June 2010. (Revised July 2012.) View Details
  46. Dubai: Debt, Development, and Crisis (C)

    On November 25, 2009, the city state of Dubai stunned markets by announcing that Dubai World, its flagship state holding company, would seek a six month "standstill" on at least $4 billion U.S. dollars of its $26 billion in debt obligations. This case describes Dubai's development strategy in detail and narrates how, as part of that strategy, a series of state-owned holding companies accumulated billions of dollars in debt. The A case ends as Sheikh Ahmed bin Saeed, chairman of Dubai's Fiscal Committee, has to decide what to do about the financial troubles of Dubai World and other state-owned holding companies. The case presents Sheikh Ahmed bin Saeed having to decide among three options: The Dubai government can guarantee the debt, they can renegotiate the debt, or walk away (i.e., default). The B case describes the decision and the reactions to this decision around the world and presents a new decision on the part of bond holders of Dubai's state-owned holding companies. The C case briefly analyzes the advantages and disadvantages of Dubai's bankruptcy procedures, both for investors and for the holding companies of Dubai.

    Keywords: Finance; Investment; Emerging Markets; Trade; Insolvency and Bankruptcy; Development Economics; Financial Crisis; State Ownership; Sovereign Finance; Business Strategy; Dubai;

    Citation:

    Musacchio, Aldo, Andrew Christopher Goodman, and Claire K. Qureshi. "Dubai: Debt, Development, and Crisis (C)." Harvard Business School Supplement 710-071, June 2010. (Revised July 2012.) View Details
  47. Necessity and Invention: Monetary Policy Innovation and the Subprime Crisis

    This case describes the efforts of Ben Bernanke, Chairman of the Federal Reserve, to improve liquidity in money markets during the subprime crisis. The case explains the four main new tools for monetary policy (or quantitative easing) the Federal Reserve has used between 2007 and 2009: the Term Auction Facility (TAF), the Primary Dealer Credit Facility (PDCF), the Term Securities Lending Facility (TSLF), and the Asset Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF).

    Keywords: Financial Crisis; Money; Financial Liquidity; Central Banking; Policy; Business and Government Relations;

    Citation:

    Musacchio, Aldo, and Dante Roscini. "Necessity and Invention: Monetary Policy Innovation and the Subprime Crisis." Harvard Business School Case 709-041, January 2009. (Revised February 2010.) View Details
  48. Iceland (TN) (A) and (B)

    Teaching Note for [709011] and [709012].

    Citation:

    Musacchio, Aldo. "Iceland (TN) (A) and (B)." Harvard Business School Teaching Note 710-052, January 2010. (Revised February 2010.) View Details
  49. In the Spotlight: The Market for Iron Ore

    This note discusses the structure and functioning of the market for iron ore. This market has traditionally functioned using a benchmark pricing mechanism, in which large steel mills in Japan (now in China) negotiate the benchmark price with the largest of the big three iron ore producers (Vale do Rio Doce). Yet this market is changing rapidly, with the rise of China as the main consumer of iron ore the rules seem to be changing. The note examines the increasing importance of the spot market for iron ore and the advantages and disadvantages of abandoning the benchmark price system for both consumers and miners.

    Keywords: Industry Structures; Mining; Price; Valuation; Business Strategy; Demand and Consumers; Business and Government Relations; Mining Industry; China;

    Citation:

    Musacchio, Aldo, Tarun Khanna, and Jenna Bernhardson. "In the Spotlight: The Market for Iron Ore." Harvard Business School Background Note 710-049, January 2010. View Details
  50. Indian Railways: Building a Permanent Legacy?

    Keywords: Government and Politics; Managerial Roles; Size; State Ownership; Performance; Transportation Industry; India;

    Citation:

    Khanna, Tarun, Aldo Musacchio, and Rachna Tahilyani. "Indian Railways: Building a Permanent Legacy?" Harvard Business School Case 710-008, August 2009. (Revised October 2009.) View Details
  51. Petrobras in Ecuador (C): Lula and Political Risk at Home

    Keywords: Government and Politics;

    Citation:

    Musacchio, Aldo, and Lena G. Goldberg. "Petrobras in Ecuador (C): Lula and Political Risk at Home." Harvard Business School Supplement 310-029, August 2009. (Revised September 2009.) View Details
  52. Petrobras in Ecuador (A)

    On October 18, 2007, Ecuador's President Rafael Correa announced his intention to migrate Petrobras' existing participation contracts to exploit oil reserves in Ecuador's Blocks 18 and 31 to servicing agreements under which Petrobras would be paid a production fee and reimbursed for investment costs but all recovered oil would belong to the government. Correa also announced a dramatic increase in corporate taxes and changes to other contracts to which Petrobras was a party. All foreign oil companies operating In Ecuador would be similarly affected and any company refusing to "renegotiate" its contracts would face a 100% tax on profits. How should Petrobras respond to Ecuador's riding roughshod over its contracts? Should Petrobras take the Ecuadorian government to arbitration? Or would it be better to pursue a negotiated solution similar to that reached in Bolivia a year earlier? How should Petrobras balance its fiduciary duties to and the best Interests of its shareholders with the interests of the Brazilian government? How should it communicate with its various constituencies?

    Keywords: Metals and Minerals; Globalized Firms and Management; Corporate Governance; Government Administration; Taxation; Contracts; Negotiation Process; Negotiation Tactics; Public Ownership; Business and Government Relations; Business and Shareholder Relations; Brazil; Ecuador;

    Citation:

    Musacchio, Aldo, Lena G. Goldberg, and Ricardo Reisen de Pinho. "Petrobras in Ecuador (A)." Harvard Business School Case 309-107, April 2009. (Revised August 2009.) View Details
  53. Petrobras in Ecuador (B)

    Keywords: Energy; Energy Industry; Ecuador;

    Citation:

    Musacchio, Aldo, Lena G. Goldberg, and Ricardo Reisen de Pinho. "Petrobras in Ecuador (B)." Harvard Business School Supplement 309-108, April 2009. View Details
  54. Iceland (B): Redefining Aaa-Rated Sovereigns

    In May of 2008, a team of sovereign debt analysts at Moody's had to decide whether to downgrade the country's sovereign long-term debt from Aaa to Aa1 or lower. Investor sentiment toward Iceland had changed radically in March, and the Moody's team was fearful that the situation could spiral out of control. The Moody's team knew that carry traders increased Iceland's vulnerability to a confidence crisis because they were quick to liquidate their holdings at the first sign of distress. The plunge in the Icelandic Krona since the beginning of 2008 also forced the Icelandic people to confront a decision: would joining the European Union (EU) protect Iceland from capricious swings in investor sentiment? What, if anything, should Iceland do to avoid a future crisis?

    Keywords: Sovereign Finance; Financial Crisis; Borrowing and Debt; Currency; Financial Condition; Decision Choices and Conditions; Iceland; European Union;

    Citation:

    Musacchio, Aldo. "Iceland (B): Redefining Aaa-Rated Sovereigns." Harvard Business School Supplement 709-012, August 2008. View Details
  55. Brazil Under Lula: Off the Yellow BRIC Road (TN)

    Teaching Note for [707031].

    Keywords: Cost Management; Programs; Problems and Challenges; Equality and Inequality; Poverty; Growth and Development Strategy; Brazil; India; Russia; China;

    Citation:

    Musacchio, Aldo. "Brazil Under Lula: Off the Yellow BRIC Road (TN)." Harvard Business School Teaching Note 708-049, March 2008. View Details
  56. Brazil Under Lula: Off the Yellow BRIC Road

    Covers President Lula's challenges to reduce "Brazil cost" and grow like other BRIC countries (Brazil, Russia, India, and China). Experts agreed that for Brazil to grow like other BRIC countries, the Brazilian government would have to reduce the cost of doing business in the country ("Brazil cost"). At the same time, President Lula's challenge is to develop programs that accelerate growth without undermining the progress achieved in reducing inequality and poverty. Can the Brazilian government reverse inequality and grow at the same time? What development strategy should Lula follow in his second term? Does Brazil belong in BRIC? What do these countries have in common?

    Keywords: Developing Countries and Economies; Cost; Growth and Development Strategy; Business and Government Relations; Poverty; Equality and Inequality; China; India; Russia; Brazil;

    Citation:

    Musacchio, Aldo. "Brazil Under Lula: Off the Yellow BRIC Road." Harvard Business School Case 707-031, January 2007. (Revised March 2008.) View Details
  57. The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry (TN)

    Teaching Note to 706043.

    Keywords: Markets; Apparel and Accessories Industry; Lesotho;

    Citation:

    Abdelal, Rawi E., Regina M. Abrami, Noel Maurer, and Aldo Musacchio. "The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry (TN)." Harvard Business School Teaching Note 707-003, July 2006. (Revised February 2007.) View Details
  58. The Barber of Buenos Aires: Argentina's Debt Renegotiation (TN)

    Keywords: Borrowing and Debt; Argentina;

    Citation:

    Maurer, Noel, and Aldo Musacchio. "The Barber of Buenos Aires: Argentina's Debt Renegotiation (TN)." Harvard Business School Teaching Note 706-062, May 2006. (Revised January 2007.) View Details
  59. The Barber of Buenos Aires: Argentina's Debt Renegotiation

    Tells the story of Argentina's aggressive strategy for renegotiating its sovereign debt from 2003 to 2005. Most creditors accepted the offer to swap their debt for new securities worth 35 cents on the dollar, with no recognition of all past-due interest. Many holdouts, however, remain outside the deal. Some experts believe that Argentina's stance will have negative consequences for the country's private sector and gives a worrisome signal about public policies; others maintain that circumstances beyond the government's control had placed the country in an unsustainable situation, and the successful renegotiation opens up new opportunities. The case presents the story of Argentina's debt saga from the point of view of the country's creditors (foreign and domestic), its government, and private Argentine companies that had to do business in the post-renegotiation environment. Also, discusses the larger issue of how the international financial community should handle sovereign debt workouts.

    Keywords: Private Sector; Borrowing and Debt; Insolvency and Bankruptcy; International Finance; Foreign Direct Investment; Sovereign Finance; Government and Politics; Negotiation Tactics; Outcome or Result; Situation or Environment; Argentina;

    Citation:

    Maurer, Noel, and Aldo Musacchio. "The Barber of Buenos Aires: Argentina's Debt Renegotiation." Harvard Business School Case 706-034, April 2006. (Revised December 2006.) View Details
  60. The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry

    In Maseru, the capital of the Kingdom of Lesotho, the stirrings of industrialization and modernization were promising, and more than 50,000 workers, mostly women, were employed in the textile sector; the figure reflected more than a threefold increase in just a few years. Just outside Maseru, however, life was pastoral. Of Lesotho's 1.9 million citizens, 86% were engaged in subsistence agriculture. The country's hopes for progress rested with the jobs created by Taiwanese and Chinese firms. In early 2006, however, the survival of the nascent industry hung in the balance. The appreciation of Lesotho's currency, the loti, made life difficult for the apparel firm, which exported almost all of their production to the United States. Although the firms enjoyed duty-free access to an otherwise protected U.S. clothing market through the African Growth and Opportunity Act, the provisions that most benefited Lesotho would expire in 2007. A few large buyers would be making sourcing decisions that could make or break Lesotho's industry. Local union leaders were upset with the government's handling of the textile boom and its putatively impending bust. Certainly the government would play an important role in formulating a strategy and adjusting the institutional context, but decisions made by the unions, foreign investors, foreign buyers, and the American government would also be critical. How would posterity judge Lesotho's first encounter with world markets--as a triumph or a disaster?

    Keywords: History; Labor Unions; Trade; Business and Stakeholder Relations; Financial Crisis; Globalized Markets and Industries; Business and Government Relations; Decision Choices and Conditions; Foreign Direct Investment; Developing Countries and Economies; Fashion Industry; Apparel and Accessories Industry; Lesotho;

    Citation:

    Abdelal, Rawi E., Regina M. Abrami, Noel Maurer, and Aldo Musacchio. "The Market and the Mountain Kingdom: Change in Lesotho's Textile Industry." Harvard Business School Case 706-043, March 2006. (Revised November 2006.) View Details

    Research Summary

  1. Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond

    Part of the fear and misunderstanding of state capitalism in the post-Berlin Wall era stems from the fact that most observers see state-owned enterprises (SOEs) as inefficient soviet companies. In Reinventing State Capitalism: Leviathan in Business, Brazil and Beyond (Harvard University Press, 2014) we present systematic, cross-country evidence showing that the form of state capitalism prevailing in the twenty-first century is different from the form we observed in the second half of the twentieth century. Then, governments owned and managed a large number of enterprises and directly controlled the allocation of strategic resources. More recently—perhaps paradoxically—the privatization and liberalization wave of the 1980s and 1990s helped create two new forms of hybrid capitalism in which the government influences private companies’ investment decisions through majority ownership in publicly traded corporations and through either minority equity investments or loans from government banks. We study the implications of these new varieties of state capitalism using detailed data from Brazil between 1976 and 2009.

    We argue that in the Leviathan as a majority investor mode governments have corporatized SOEs or listed them in stock exchanges. Such firms commonly have relative financial autonomy, professional management, and a board of directors with some independent members and relatively short tenures. Financials are audited by professional accounting firms. The transformation from owner and manager to majority shareholder has reduced many agency problems commonly faced by SOEs, but—as we explain—has not reduced the temptation governments face to intervene in the operation of large strategic enterprises.

    In the Leviathan as a minority shareholder mode, governments have small equity ownership in corporations and in general do not intervene in management. We find evidence that such equity investments allow firms to alleviate capital constraints and increase capital expenditures. Yet we also find instances in which governments use their minority positions to intervene in the management of firms, especially in natural resource industries.

    Keywords: State capitalism; state-owned enterprises; development banks; State Ownership; Development Economics; Management; Energy Industry; Banking Industry; Brazil; China; Europe; Latin America; Asia;

  2. Experiments in Financial Democracy: Corporate Governance and Financial Development in Brazil, 1882-1950 (BOOK)

    In my first book manuscript, Experiments in Financial Democracy, I challenge the idea that it was colonial institutions that sent Brazil, a civil law country, down a particular path of corporate governance and finance. Detailed archival research reveals significantly different patterns of corporate governance and finance between the beginning of the twentieth century and the 1990s. In order to attract investors, the founders of companies organized before 1910 often included in the statutes stronger protections for small shareholders than what was mandated by law. The most important of these protections were maximum vote provisions that capped the number of votes a single shareholder (and sometimes even a single proxy voter) could exercise during a shareholder meeting. An analysis of the shareholder lists of nearly 100 Brazilian companies revealed a correlation between corporate statutes that protected small shareholders and less concentrated ownership and control. I maintain that the corporate governance rules in the past help to explain the peak in equity market development observed between 1890 and 1914 (by some measures, equity markets were more developed then than they are today).


    The second main contribution of Experiments in Financial Democracy is to show that Brazil’s bond markets were more developed in the past than they are today. Bond markets in the past were larger than today because creditors then enjoyed strong legal protections by which companies were inclined to abide. Some of these findings were published in articles before the book manuscript was completed. In these earlier papers I document the relatively large size of Brazil’s bond markets during the first era of financial globalization (1870-1913) and the stronger creditor protections that existed before 1945.

     

  3. Contract Rights and Risk Aversion: Foreign Banks and the Mexican Economy, 1997-2004

    In 1997 Mexico’s banking laws were reformed, allowing foreign banks, for the first time since the nineteenth century, to purchase controlling interests in the country’s largest banks. Foreign banks controlled 16 percent of Mexican bank assets in March 1997. By June 2004 they controlled 82 percent. What impact did foreign mergers and acquisitions have on the strategy and performance of Mexico’s banks? We find that all banks in Mexico (both domestic and foreign) have become increasingly risk averse. We also find that foreign banks are more risk averse than domestic banks: they allocate less of their assets to loans for private consumption and investment and screen borrowers more intensively than domestic banks. As a consequence of their risk aversion, foreign banks charge lower interest rate spreads than domestic banks. We find, however, that the lower interest rate spreads charged by foreign banks do not translate into lower rates of return on equity. Given the weak property rights environment in Mexico, a risk averse asset allocation strategy is economically rational.

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    Teaching

  1. Overview

    Globalization and Emerging Markets (Elective Course) The world order has changed significantly in the last two decades. The influence of western-style varieties of capitalism has been challenged by new forms of capitalism that rely less on private enterprise and on the enforcement of rigid institutional structures (e.g., laws). This change is to a large extent explained because of the rise of emerging markets to the center stage of global capitalism. Large economies such as those of BRIC countries (Brazil, Russia, India, and China) or the so-called N-11 (Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey, and Vietnam) dominate some of the most important commodity markets and are growing and industrializing at a faster pace than any developed country. Additionally, investors that considered securities issued in emerging markets as a risky asset class in the 1990s are now buying emerging market bonds and stocks as the new blue chips. These trends are important because they provide a new set of opportunities for entrepreneurs and investors in the developed world and within emerging markets. Some of these changes, however, have taken place so fast that it is hard for investors, entrepreneurs, and managers in general to develop a framework that can help them differentiate secular trends from temporary transitions and provide them with lessons to deal with the weak institutions, political risk, and strong state presence that prevails in emerging markets. Therefore, this course provides a simple framework to understand the development strategies followed by emerging markets, identify and learn to deal with political risk and state capitalism, and, finally, to distinguish new trends that can provide sustainable business opportunities. The course uses a variety of country and company cases to accomplish these objectives -- from country cases on BRIC economies, to cases on energy, mining, and utility companies to banks operating in emerging markets. Doing business in emerging markets and interacting with the governments of those countries poses significant challenges. The business environment in these new dominant emerging markets is very different from that of the developed world. For instance, in the largest emerging markets governments play a greater role to promote economic development, the rule of law tends to be weaker and the enforcement of contracts can end up depending on the political whims of whoever is in power. Therefore, this course will have a strong focus on the strategic challenges managers face when dealing with state-owned enterprises or with governments that threaten firm performance either through expropriation, corruption, or other forms of state intervention. The course will focus on three interrelated modules that affect growth and business opportunities in emerging markets. First, the course provides a basic framework to understand the development strategies and sources of competitiveness in emerging markets. Second, the course will look at the kind of strategies that succeed when investing and doing business in or with emerging markets. Finally, the third module looks at business-government relations in three different ways. The module will begin by looking at the rising challenge of developing successful strategies in systems in which corruption is pervasive. Second, we will look at the importance of state-owned enterprises in emerging markets and the possible risks and business opportunities that they may bring. Finally, the module includes a series of cases that examine strategies for companies and investors to help them overcome expropriation risk.

    Keywords: emerging markets; globalization; strategy; macroeconomics; State capitalism; political economy; Emerging Markets; Multinational Firms and Management; Global Strategy; Economics; Energy Industry; Retail Industry; Mining Industry; Agriculture and Agribusiness Industry; Banking Industry; China; Africa; Dubai; Pakistan; India; Brazil; Russia; Cuba; Argentina;

    Awards & Honors

  1. Gerry Feldman Prize for the Best Research Article Published by a Young Scholar: Winner of the 2012 Gerry Feldman Prize for the Best Research Article Published by Young Scholars in the Financial History Review during 2010–2011, sponsored by the European Association of Banking and Financial History, for the paper with André C. Martínez Fritscher, "Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930" (April 2010).

  2. Manuel Espinosa Yglesias Prize: Winner of the 2012 Manuel Espinosa Yglesias Prize for the best paper or book on banking, awarded by the Centro de Estudios Espinosa Yglesias, for the paper with Stephen Haber, “These Are the Good Old Days: Foreign Entry and the Mexican Banking System."

  3. Professional Merit Award, Academic Sector: Winner of the 2012 Academic Merit Award from the Alumni Association of the Instituto Tecnologico Autonomo de Mexico.

  4. Best Conference Presentation Prize: Winner of the Prize for the Best Paper Presented at the Strategic Management Society Special Conference in 2011 for his paper with Sergio G. Lazzarini, “Leviathan as a Minority Shareholder: BNDES’ Equity Purchases and Firm Performance in Brazil, 1995–2003” (Harvard Business School Working Paper, No. 11–073, January 2011.)

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