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: 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;
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.
Contract Rights and Risk Aversion: Foreign Banks and the Mexican Economy, 1997-2004
In 1997 Mexicos banking laws were reformed, allowing foreign banks, for the first time since the nineteenth century, to purchase controlling interests in the countrys 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 Mexicos 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.