CAMBRIDGE: Only investor rights protected by law bring the power to extract from managers a return on investment. Shareholders receive dividends because they can vote out directors (and indirectly management) who do not pay them; creditors are paid because they have the power to repossess collateral. Without legal rights, investors would not get paid, and firms would lose the power to raise funds. The rights attached to stocks and bonds are what managers give up to get finance.
CAMBRIDGE: Only investor rights protected by law bring the power to extract from managers a return on investment. Shareholders receive dividends because they can vote out directors (and indirectly management) who do not pay them; creditors are paid because they have the power to repossess collateral. Without legal rights, investors would not get paid, and firms would lose the power to raise funds. The rights attached to stocks and bonds are what managers give up to get finance.