Corporate Finance.

• Position: National Bureau of Economic Research Program on Corporate Finance

The NBER's Program on Corporate Finance met on November 10 in Cambridge. Rene M. Stulz, NBER and Ohio State University, chose these papers for discussion:

Luigi Guiso, University of Sassari, Paola Sapienza, Northwestern University, and Luigi G. Zingales, NBER and University of Chicago, "The Role of Social Capital in Financial Development" (NBER Working Paper No. 7563)

Discussant: Tarun Khana, Harvard University

Charles P. Himmelberg and Inessa Love, Columbia University, and R. Glenn Hubbard, NBER and Columbia University, "Investor Protection, Ownership, and Investments: Some Cross-Country Empirical Evidence"

Discussant: David S. Scharfstein, NBER and MIT

Julie Wulf, University of Pennsylvania, "Internal Capital Markets and Firm-Level Compensation Incentives for Division Managers"

Discussant: Antoinette Schoar, MIT

Michael J. Barclay, NBER and University of Rochester; Clifford G. Holderness, Boston College; and Dennis P. Sheehan, Pennsylvania State University, "The Block Pricing Paradox"

Discussant: Karen H. Wruck, Ohio State University

Brett Trueman, M. H. Franco Wong, and Xiao-Jun Zhang, University of California, Berkeley, "The Eyeballs Have It: Searching for the Value in Internet Stocks"

Discussant: Jay R. Ritter, University of Florida

Eugene F. Fama, University of Chicago, and Kenneth R. French, NBER and MIT, "The Equity Premium"

Discussants: G. William Schwert, NBER and University of Rochester, and Andrei Shleifer, NBER and Harvard University

To identify the effect of social capital on financial development, Guiso, Sapienza, and Zingales exploit the well-known differences in social capital and trust across different areas of Italy. In regions with high levels of social trust, households invest less in cash and more in stock, use more checks, have higher access to institutional credit, and make less use of informal credit. The effect of social capital is stronger where legal enforcement is weaker and among less-educated people. These results are not driven by omitted environmental variables, because the authors also show that the behavior of people who move is still affected by the level of social capital in the province where they were born.

Himmelberg, Love, and Hubbard investigate the effect of investor protection on corporate investment, emphasizing the endogeneity of ownership structure as one means of identifying firms operating under weak legal protections. Building on the idea that a weak legal environment increases the cost of...