Corporate finance meeting.

• Position: National Bureau of Economic Research conference

The NBER's Program on Corporate Finance, directed by Robert Vishny of the University of Chicago, met in Cambridge on November 21 to discuss the following papers:

Rafael LaPorta, Harvard University: Florencio Lopez de Silanes and Andrei Shleifer, NBER and Harvard University; and Robert W. Vishny, "Agency Problems and Dividend Policies Around the World"

Discussant: Kose John, New York University

Josef Lakonishok, NBER and University of Illinois, and Inmoo Lee, Case Western Reserve University, "Are Insiders' Trades Informative?"

Discussant: Joshua Lerner, NBER and Harvard University

Zsuzsanna Fluck, New York University; Douglas Holtz-Eakin, NBER and Syracuse University; and Harvey S. Rosen, NBER and Princeton University, "Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises"

Discussant: Mitchell Petersen, Northwestern University

Armando Gomes, University of Pennsylvania, "Going Public with Assymetric Information: Agency Costs and Dynamic Trading"

Discussant: Jeremy C. Stein, NBER and MIT

Charles Himmelberg and Darius Palia, Columbia University, and R. Glenn Hubbard, NBER and Columbia University, "Understanding the Determinants of Managerial Ownership and the Link Between Ownership and Performance"

Discussant: Karen Wruck, Harvard University

LaPorta and his coauthors analyze why firms pay dividends, the so-called "dividend puzzle," from the agency perspective. They outline two agency models of dividends: 1) "the outcomes" model, in which dividends are the result of effective pressure by minority shareholders to force corporate insiders to disgorge cash - in this model, stronger minority shareholder rights should be associated with higher dividends; and 2) "the substitutes" model, in which insiders choose to pay dividends to establish a reputation for decent treatment of minority shareholders, so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and should be associated with lower dividends. The authors compare these models on a cross-section of 4,000 companies from around the world, in countries with different levels of investor protection, and therefore different strength of minority shareholder rights. Their findings on payout levels, as well as other results, support the outcomes model of dividends.

Lakonishok and Lee document insider trading activities of all-companies listed on the NYSE, Amex, and Nasdaq...