Corporate Governance, Strategy and Regulation


What determines firms’ dynamic decisions to comply with corporate governance practices governed by comply-or-explain (CorE) standards? We develop a micro-founded model showing that firms’ decisions are driven by two key forces: a mimicking effect and a pressure-to-comply effect. Together, these forces generate a diffusion process in which average compliance converges to each practice’s efficacy in preventing losses associated with corporate value-destroying events. We find that these two effects satisfy three main properties. First, the pressure-to-comply effect diminishes over time and disappears entirely in the steady state. Second, when the diffusion process does not allow for back-rolling, the mimicking effect always dominates the pressure effect. Third, changes in practice efficacy and in the magnitude of prevented losses affect the two forces in opposite directions. Using Chilean data, we show that mimicking and pressure effects differ across practice categories, reflecting differences in efficacy and expected losses. We conclude by discussing the policy implications of our findings and potential extensions of the model.


We document the effects that three different types of events: i) corporate scandals ii) hard legal reforms, and iii) soft legal reforms, have had on the Chilean market for corporate directors between 2008 and 2019. Like the effects generated by the sequence Enron-Worldcom-SOX, we find that the supply of corporate directors contracted due to increasing risks and workload faced by the profession. However, unlike the case of Enron-Worldcom-SOX the demand for corporate directors only changed marginally and the use of external directors remained almost constant. This is consistent with an overall result in which directors’ compensations significantly increased and the average size of the board marginally decreased. In addition, we found that hard legal reforms had several unexpected and probably unwanted effects, including a reduction in the use of committees and in the presence of independent directors. Finally, and perhaps surprisingly for a civil-law country, we show that a corporate scandal followed by a soft legal reform has the capacity to significantly increase directors’ efforts and accelerate changes in average board compositions.

Law and Economics


Why do voters reject constitutional proposals drafted by conventions they themselves elected? We study a two-stage constitutional process in which voters first elect a legislator to draft a new constitution and subsequently approve or reject it in a referendum. The model highlights how imperfect electoral signals generate asymmetric information between voters and legislators, but its central contributions go beyond this familiar logic. We show that informational distortions are most severe at intermediate levels of voter polarization: when polarization is high, electoral separation allows legislators to infer voter preferences accurately, whereas moderate polarization increases misinterpretation and rejection risk. Moreover, learning from noisy electoral signals can backfire. Legislators who rationally update their beliefs may be less likely to secure approval than those who strategically ignore electoral information. As a result, referenda may fail to improve voter welfare even when all actors prefer reform. These findings offer a new perspective on recent constitutional failures, including Chile, by emphasizing the interaction between polarization, information, and strategic learning.


It is commonly argued that the case overload faced by higher courts (especially in civil law) can be reduced by restricting access to them. In this paper we prove that such restriction can also significantly reduce judicial uniformity among lower courts and alter litigation decisions as well as outcomes. To test our predictions we build a database of wrongful termination lawsuits that took place before and after the implementation of a reform to the Chilean labor justice system. This reform exogenously and drastically reduced access to higher courts. As we predict, this reduction increased the probability of a first-instance pro-plaintiff decision (by 36%); increased the percentage recovered by a plaintiff in court (by 27%) and reduced the probability of a settlement (by 16%). The Priest & Klein 50% hypothesis suggests that prior to the reform plaintiffs recovered too little. Policy implications follow.