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

• Published in: Journal of financial economics Vol. 105; no. 2; pp. 412 - 435
• Main Authors: Bae, Kee-Hong, Baek, Jae-Seung, Kang, Jun-Koo, Liu, Wei-Lin
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.08.2012; Elsevier Sequoia S.A
• Subjects: Argentina; Asia; Asian financial crisis; Business valuation; Cash flow; Cash flow rights; Control rights; Controlling shareholder; Corporate governance; Economic crisis; Economic models; Expropriation; Financial crisis; Firm value; Latin America; Stockholders; Studies; Asia; Latin America; Asian financial crisis; Cash flow rights; Expropriation; Control rights; Corporate governance; Firm value; G33; G21; G32; G34; G15; Controlling shareholder
• ISSN: 0304-405X; 1879-2774
• DOI: 10.1016/j.jfineco.2012.02.007

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.