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.
Reinventing State Capitalism
In this book we study the evolution of corporate governance arrangements that governments have adopted for their state-owned enterprises (SOEs) in the last 20 years. We show that the process of privatization and liberalization of the 1990s and early 2000s created two new forms of state capitalism, in which Leviathan acts a majority or minority investor in publicly-listed corporations. We then argue that governments have transformed the governance of flagship SOEs in a way that has mitigated many of the agency and political problems that were pervasive in these firms throughout the twentieth century. The book describes how this transformation of state capitalism occurred globally and then performs statistical tests of the implications of these new forms of state capitalism in Brazil.
When governments act as majority shareholders in publicly traded firms, we find that they have reduced agency and political problems commonly associated with SOEs. Large SOEs, we find, tend to have either pay for performance or other mechanisms to incentivize managers; they have boards of directors, sometimes with external members; they follow international accounting standards and report financials often (usually quarterly); they also have large institutional investors as shareholders, which are effective in monitoring managers; and these firms are commonly rated by credit rating agencies. In the Leviathan-as-a-minority-shareholder model, which is also increasingly common, agency problems associated with state ownership have been tamed. Through this minority ownership model, governments around the world keep cash-flow rights in key industries, they play the role of large shareholders monitoring management, often having a seat on the board, but they do not run the companies themselves.
The book also emphasizes the fact that governments use development banks to prop up selected firms, the so-called “national champions.” For instance, in Brazil the government uses the national development bank invests in equity and provides subsidized loans to companies. In the book we use detailed data on loans of Brazil’s National Development Bank, known as BNDES, to over 200 publicly listed corporations and find that since 2002 most firms are not using the loans they get from this bank to increase capital expenditures or for projects that increase profitability.
We do not argue that the new models of state capitalism have solved all of the agency and political problems of the old forms of state capitalism. The argument is that while these new models have partially mitigated agency conflicts, there are still obstacles and political temptations to intervene in SOEs or in private firms where the state is a minority shareholder or lender. That is, these new models of state capitalism are perhaps a second best solution, yet a solution that is the product of the complex political economy of emerging and developed markets.
LOS BUENOS TIEMPOS SON ÉSTOS
This book is the Spanish translation of our award winning paper "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.)
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 one percent of bank assets in
Mexico were foreign owned, today they control 74 percent 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 book.