Aldo Musacchio is a business and economics professor at Brandeis University near Boston, MA and a Faculty Research Fellow at the National Bureau of Economic Research (NBER). Prior to joining Brandeis University, Prof. Musacchio was an associate professor and Marvin Bower Fellow at the Harvard Business School.
Professor Musacchio's first research projects focused on how companies can adopt corporate governance practices that protect investors in relatively adverse legal and institutional environments. His book, Experiments in Financial Democracy (Cambridge University Press, 2009) studies the mechanisms early Brazilian corporations used to follow high corporate governance standards before 1950, when the national legal protections for investors were relatively weak. He argues that companies are not trapped in the legal systems in which they operate. On the contrary, as he shows in this book, firms can overcome their institutional environments through better corporate practices and by designing bylaws that compensate for the weak legal environment. Beyond corporate governance and investor protections, Experiments in Financial Democracy challenges the idea that colonial institutions (e.g., legal systems) are immutable over time and shows how things like bankruptcy and corporate laws have significant changes over time. A country like Brazil went from being extremely protective of creditors during bankruptcy, to being pro-debtor in a couple of decades.
In his second book, Reinventing State Capitalism, co-authored with Sergio G. Lazzarini, they study the evolution of corporate governance arrangements that governments have adopted for their state-owned enterprises (SOEs) since the end of the twentieth century. They show that the process of privatization and liberalization of the 1990s and early 2000s created two new forms of state capitalism, in which the government (Leviathan) acts a majority or minority investor in publicly-listed corporations. They then argue that governments have transformed the governance of flagship SOEs in a way that has mitigated many of the agency and political problems that were pervasive in these firms throughout the twentieth century. The book describes how this transformation of state capitalism occurred globally and then performs statistical tests of the implications of these new forms of state capitalism in Brazil. Large SOEs, they find, tend to have either pay for performance or other mechanisms to incentivize managers; they have boards of directors, sometimes with external members; they follow international accounting standards and report financials often (usually quarterly); they also have large institutional investors as shareholders, which are effective in monitoring managers; and these firms are commonly rated by credit rating agencies. In the Leviathan-as-a-minority-shareholder model, which is also increasingly common, agency problems associated with state ownership have been tamed. Through this minority ownership model, governments around the world keep cash-flow rights in key industries, they play the role of large shareholders monitoring management, often having a seat on the board, but they do not run the companies themselves. They warn that if country institutions do not restrain government intervention in firms, then many of the recent corporate governance reforms will not yield the expected positive results and will create a new problem of value extraction from minority shareholders.
The book also emphasizes the fact that governments use development banks to prop up selected firms, the so-called “national champions.” For instance, in Brazil the government uses the national development bank to invest in equity and provides subsidized loans to companies. In the book we use detailed data on loans of Brazil’s National Development Bank, known as BNDES, to over 200 publicly listed corporations and find that since 2002 most firms are not using the loans they get from this bank to increase capital expenditures or for projects that increase profitability.
In his third book, These are the Good Old Days (in Spanish), together with Stephen Haber, they argue that since foreign banks were allowed to own and control banks in Mexico in 1997 there has been significantly less instability and risk in the system. In this book they diagnose why the Mexican banking system was one of the most unstable systems in the world before 1997 and how the key political economy issues that created instability have been mitigated with the entrance of foreign banks. Yet they warn that since foreign banks are more risk averse, stability has come at the cost of having less credit for Mexican companies.
Aldo Musacchio has a Ph. D. in Economic History of Latin America from Stanford University. In 2013 he won the Manuel Espinosa Yglesias Prize for research on the Mexican banking system (for work joint with Stephen Haber), the Gerry Feldman Young Scholar Prize awarded by the European Association of Banking and Financial History (shared with André C. Martínez Fritscher), and the Prize for Academic Merit, awarded by the alumni association of ITAM, Mexico City (his alma mater)! Other awards and honors include the 2008 Arthur H. Cole Prize for the best paper in the Journal of Economic History. In 2007 he was selected as one of the "30 most promising professionals in their thirties (30 promesas en los treintas)" by Mexican business magazine Expansion.
