The aphorism, “As a man thinketh in his heart so is he,” not only embraces the whole of a man's being, but is so comprehensive as to reach out to every condition and circumstance of his life. A man is literally what he thinks, his character being the complete sum of all his thoughts.
Our daily lives are shaped by a series of decision processes, ranging from very unimportant choices to life-changing judgments. The complexity of the decision processes increases tremendously when the decision-making takes place in a social context, i.e., when other human beings are directly involved in the decision. In such conditions the decision-maker not only tries to maximize his own utility, but also needs to take into account the interdependent nature of the situation. Information about others’ preferences, characteristics, and actions play an important role, and need to be thoroughly evaluated and predicted before making a decision. In this thesis we explore the neural correlates of two different types of social decision-making.
Can debt capital create value in firms suspected of having extreme agency problems? And does it? A good laboratory for research is emerging markets, where managers and families routinely employ pyramid ownership structures to give themselves control rights that far exceed their proportional cash flow ownership. Shareholders in these countries generally suffer from ineffective legal protection (La Porta, Lopez-de-Silanes, Shleifer, and Vishny (hereafter LLSV) (1998)) and underdeveloped markets for corporate control. The combination of misaligned managerial incentives and weak external governance in emerging markets makes overinvestment or the outright diversion of corporate funds more likely [Johnson, La Porta, Lopez-de-Silanes, and Shleifer (2000)]. Thus, emerging markets provide a unique setting in which to test whether debt functions as an alternative governance mechanism.
The international investment community is aware of these shortcomings of emerging markets. Mark Mobius, manager since 1991 of the $1.2 billion Templeton Developing Markets Trust, comments that “corporate governance is not improving so why fight it? ... It’s too Herculean a task and it’s too embedded in the culture.” Minority shareholders in emerging market firms should welcome any alternative firm-level governance that debt can provide.
