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Expropriation of Minority Shareholders in East Asia

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  • Claessens, Stijn
  • Djankov, Simeon
  • Fan, Joseph P.H.
  • Lang, Larry H.P.

Abstract

We examine the evidence on expropriation of minority shareholders by the controlling shareholder in publicly traded companies in nine East Asian countries. Higher cash-flow rights are associated with higher market valuation. In contrast, higher control rights have an insignificant or negative effect on corporate valuation. Deviations of voting from cash-flow rights through the use of pyramiding, cross-holdings, and dual-class shares, are associated with lower market values. Results are robust to the time period we study, splitting the sample by individual countries, using alternative measures of the incentive for expropriation, and using alternative measures for firm valuation. We conclude that the risk of expropriation is the major principal-agent problem for public corporations in East Asia.

Suggested Citation

  • Claessens, Stijn & Djankov, Simeon & Fan, Joseph P.H. & Lang, Larry H.P., 2000. "Expropriation of Minority Shareholders in East Asia," CEI Working Paper Series 2000-4, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    • Handle: RePEc:hit:hitcei:2000-4
    Note: This draft: July 2000
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    File URL: https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/13966/wp2000-4a.pdf
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    2. Randall Morck, 2005. "How to Eliminate Pyramidal Business Groups: The Double Taxation of Intercorporate Dividends and Other Incisive Uses of Tax Policy," NBER Chapters, in: Tax Policy and the Economy, Volume 19, pages 135-179, National Bureau of Economic Research, Inc.
    3. Henrik Cronqvist & Fredrik Heyman & Mattias Nilsson & Helena Svaleryd & Jonas Vlachos, 2009. "Do Entrenched Managers Pay Their Workers More?," Journal of Finance, American Finance Association, vol. 64(1), pages 309-339, February.
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    5. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    6. Feng-Li Lin, 2013. "Board Ownership and Firm Value in Taiwan - A Panel Smooth Transition Regression Model," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 148-160, December.
    7. Jung, Kooyul & Kwon, Soo Young, 2002. "Ownership structure and earnings informativeness: Evidence from Korea," The International Journal of Accounting, Elsevier, vol. 37(3), pages 301-325.
    8. Fernando Lefort, 2003. "Gobierno Corporativo: ¿Qué es? y ¿Cómo andamos por casa?," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 207-237.
    9. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2005. "The Rise and Fall of the Widely Held Firm: A History of Corporate Ownership in Canada," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 65-148, National Bureau of Economic Research, Inc.
    10. Ross Levine, 2005. "Law, Endowments and Property Rights," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 61-88, Summer.
    11. Sallahuddin Hassan & Zalila Othman & Mukaramah Harun, 2020. "Ownership Structure Variation and Firm Efficiency," Papers 2001.05575, arXiv.org.
    12. Kurt A. Desender & Christian E. Castro & Sergio A. Escamilla De León, 2011. "Earnings Management and Cultural Values," American Journal of Economics and Sociology, Wiley Blackwell, vol. 70(3), pages 639-670, July.
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