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Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence

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  • Bae, Kee-Hong
  • Baek, Jae-Seung
  • Kang, Jun-Koo
  • Liu, Wei-Lin

Abstract

We develop and test a model that investigates how controlling shareholders' expropriation incentives affect firm values during crisis and subsequent recovery periods. Consistent with the prediction of our model, we find that, during the 1997 Asian financial crisis, Asian firms with weaker corporate governance experience a larger drop in their share values but, during the post-crisis recovery period, such firms experience a larger rebound in their share values. We also find consistent evidence for Latin American firms during the 2001 Argentine economic crisis. Our results support the view that controlling shareholders' expropriation incentives imply a link between corporate governance and firm value.

Suggested Citation

  • Bae, Kee-Hong & Baek, Jae-Seung & Kang, Jun-Koo & Liu, Wei-Lin, 2012. "Do controlling shareholders' expropriation incentives imply a link between corporate governance and firm value? Theory and evidence," Journal of Financial Economics, Elsevier, vol. 105(2), pages 412-435.
    • Handle: RePEc:eee:jfinec:v:105:y:2012:i:2:p:412-435
    DOI: 10.1016/j.jfineco.2012.02.007
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    More about this item

    Keywords

    Expropriation; Corporate governance; Firm value; Asian financial crisis; Controlling shareholder; Cash flow rights; Control rights;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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