Connections and Information Acquisition in Capital Allocation

Connections and Information Acquisition in Capital Allocation
Mariassunta Giannetti

Xiaoyun Yu

Stockholm School of Economics,

Kelley School of Business

CEPR and ECGI

Indiana University

[e-mail]

[e-mail]

August 2010

This paper was previously circulated under the title “Favoritism or Markets in Capital Allocation?”
We thank Franklin Allen, Utpal Bhattacharya, Philip Bond, Brian Bucks, Chun Chang, Todd Gormley,
Denis Gromb, Dalida Kadyrzhanova, Chandra Kanodia, Diana Knyazeva, Ross Levine, Matej Marinc, John
McConnell, Giovanna Nicodano, Marco Pagano, Paul Povel, Raj Singh, Javier Suarez, Mathias Thoenig,
Tan Wang, Andy Winton, and seminar participants at the AFA (San Francisco), the EFA (Ljubljana), the
RICAFE2 Conference (Amsterdam), the Stockholm School of Economics, the Indian School of Business
Summer Research Conference in Finance (Hyderabad), the Conference on Corporate Governance in Family/Unlisted Firms (Thun), the CEPR/Studienzentrum European Summer Symposium in Financial Markets
(Gerzensee), the Conference on The Changing Geography of Banking (Ancona), the ECB Conference on
Financial System Modernization and Economic Growth in Europe (Berlin), the European Winter Finance
Conference (Andermatt), the 17th Annual Financial Economics and Accounting Conference (Atlanta), the
University of Frankfurt, Bocconi University, the MIT/Tsinghua University China International Conference in Finance (Chengdu), and the Workshop on Institutions, Contracts and Growth (Barcelona) for valuable comments. This paper was started when Yu was visiting the Swedish Institute for Financial Research, which we thank for the generous hospitality. Giannetti also acknowledges …nancial support from the Swedish
National Science Foundation (Vetenskaprådet), the Jan Wallander and Tom Hedelius Foundation and the
European Commission (grant CIT5-CT-2006-028942).

Electronic copy available at: http://ssrn.com/abstract=959188

References: Allen, Franklin and Douglas Gale, 2000, Comparing …nancial systems. MIT Press: Cambridge, MA. Allen, Franklin, Jun Qian and Meijun Qian, 2005, Law, …nance, and economic growth in China, Journal of Financial Economics 77, 57-116. Allen, Franklin, Rajesh Chakrabarti, Sankar De, Jun Qian and Meijun Qian, 2008, The …nancial system capacities of China and India, mimeo, University of Pennsylvania. Almeida, Heitor and Daniel Wolfenzon, 2006, Should business groups be dismantled? The equilibrium costs of e¢ cient internal capital markets, Journal of Financial Economics 79, 99-144. Beck, Thorsten, Ross Levine and Norman Loayza, 2000, Finance and the sources of growth, Journal of Financial Economics 58, 261-300. Becker, Gary S., 1971, The Economics of Discrimination, University of Chicago Press. Benveniste, Lawrence M., Alexander Ljungqvist, William J. Wilhelm and Xiaoyun Yu, 2003, Evidence of information spillovers in production of investment banking services, Journal of Finance 58, 577-607. Boot, Arnoud W. A. and Anjan V. Thakor, 1997, Financial system architecture, Review of Financial Studies 10, 693-733. Christensen, Jakob, Anne-Marie Gulde, and Catherine Pattillo, 2006, Bankable assets: Africa faces many obstacles in developing …nancial systems, Private Sector Development, World Bank, Detragiache, Enrica, Thierry Tressel, and Poonam Gupta, 2008, Foreign banks in poor countries: Theory and evidence, Journal of Finance forthcoming. Diamond, Douglas W., 1984, Financial Intermediation and Delegated Monitoring, Review of Economic Studies 51, 393-414. Falkenstein, Eric G., 1996, Preferences for stock characteristics as revealed by mutual fund portfolio holdings, Journal of Finance 51, 111-135. Franks, Julian R., Colin Mayer, and Stefano Rossi, 2009, Ownership: Evolution and regulation, Review of Financial Studies 22, 4009-4056. Khanna, Tarun and Yishay Yafeh, 2007, Business groups in emerging markets: Paragons or parasites?, Journal of Economic Literature 45, 331-372. Lamoreaux, Naomi R., 1996, Insider lending, NBER Series on long-term factors in economic development: Cambridge, MA. La Porta, Rafael, Florencio Lopez-de-Silanes, and Guillermo Zamarripa, 2003, Related lending, Quarterly Journal of Economics 128, 231-268. Levine, Ross, 2006, Finance and growth: Theory and evidence. In Philippe Aghion and Steven Durlauf, eds Ljungqvist, Alexander P. and William J. Wilhelm, Jr., 2002, IPO allocations: discriminatory or discretionary?, Journal of Financial Economics 65, 167-201. Loughran, Tim and Jay R. Ritter, 2002, Why don’ issuers get upset about leaving money on t Marosi, András and Nadia Massoud, 2008, “You can enter but you cannot leave...” –U.S. securities markets and foreign …rms, Journal of Finance 53, 2477-2506. Pagano, Marco, Fabio Panetta and Luigi Zingales, 1998, Why do companies go public? An empirical analysis, Journal of Finance 53, 27-64. Pagano, Marco, Ailsa A. Röell and Josef Zechner, 2002, The geography of equity listing: Why do companies list abroad?, Journal of Finance 57, 2651 - 2694. Phelps, Edmund S., 1972, The statistical theory of racism and sexism, American Economic Review 62, 659-661. Piotroski, Joseph and Suraj Srinivasan, 2008, Regulation and bonding: The Sarbanes-Oxley Act and the ‡ of international listings, Journal of Accounting Research 46, 383-425. ow Rajan, Raghuram G., 1992, Insiders and outsiders: The choice between informed and arm’ slength credit, Journal of Finance 47, 1367-400. Rajan, Raghuram G. and Luigi Zingales, 2003, Saving Capitalism from the Capitalists, Crown Business, New York. Stein, Jeremy C., 1997, Internal capital markets and the competition for corporate resources, Journal of Finance 52, 111-133. Zingales, Luigi, 2006, Is the U.S. market losing its competitive edge?, mimeo, the University of Chicago.