Legal environment, firm-level corporate governance and expropriation of minority shareholders

Krishnamurti, Chandrasekhar and Sevic, Aleksandar and Sevic, Zeljko (2005) Legal environment, firm-level corporate governance and expropriation of minority shareholders. Economic Change and Restructuring, 38 (1). pp. 85-111. ISSN 1573-9414

Abstract

Claessens et al. (2000, Journal of Financial Economics 58(1–2), 81–112) show that corporate control is substantially enhanced by using pyramid structures and cross-holdings by firms in nine East Asian countries. Claessens et al. (1999, SSRN Working Paper; 2002, Journal of Finance 57(2), 2741–2771) provide empirical evidence regarding expropriation arising from the separation of cash flow from voting rights in Asian firms. Their analysis suggests a high degree of expropriation in Hong Kong, Indonesia, Malaysia, and Thailand. We re-examine the problem of expropriation in Asian firms reported by earlier research. We explore firm-level governance-control structure interactions, and control-legal environment interaction for a set of Asian firms for which we are able to obtain relevant data for all the required variables. The major contribution of this paper is that it jointly examines ownership-control structure, firm level governance and country-level legal protection available to external suppliers of capital. Using post-crisis data, we find a strong country effect in governance. In general, high control firms in countries with weak legal protection have lower firm-level governance scores in general. On the other hand, high control firms, in countries which have a stronger legal protection environment, signal their intention to not expropriate minority shareholders' wealth by voluntarily adopting measures to strengthen their discipline and responsibility scores. Contrary to earlier findings, we do not find a relationship between control-ownership wedge and firm value. Furthermore, we do not find any relation between firm-level governance and firm value as measured by Tobin's Q.


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Item Type: Article (Commonwealth Reporting Category C)
Refereed: Yes
Item Status: Live Archive
Additional Information: Permanent restricted access to paper due to publisher copyright restrictions.
Depositing User: Professor Chandrasekhar Krishnamurti
Faculty / Department / School: Historic - Faculty of Business - Department of Accounting
Date Deposited: 29 Nov 2011 00:59
Last Modified: 03 Jul 2013 00:54
Uncontrolled Keywords: corporate governance, expropriation, ownership structure
Fields of Research (FOR2008): 15 Commerce, Management, Tourism and Services > 1502 Banking, Finance and Investment > 150201 Finance
Socio-Economic Objective (SEO2008): E Expanding Knowledge > 97 Expanding Knowledge > 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
Identification Number or DOI: doi: 10.1007/s10644-005-4524-4
URI: http://eprints.usq.edu.au/id/eprint/20176

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