Legal protection of investors, corporate governance, and investable premia in emerging markets (original) (raw)

Corporate governance, investor protection, and performance in emerging markets

Journal of Corporate Finance, 2004

Recent research studying the link between law and finance has concentrated on countrylevel investor protection measures and focused on differences in legal systems across countries and legal families. Our paper extends this literature and provides a study of firmlevel corporate governance practices across emerging markets and a greater understanding of the environments under which corporate governance matters more. Our empirical tests show that better corporate governance is highly correlated with better operating performance and market valuation. More importantly, we provide evidence showing that firm-level corporate governance provisions matter more in countries with weak legal environments. These results suggest that well-governed firms benefit more in bad corporate governance environments and that firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and providing credible investor protection. Our tests also show that firm-level governance and performance is lower in countries with weak legal environments, suggesting that improving the legal system should rema in a priority for policymakers.

Firm Investments and Corporate Governance in Asian Emerging Markets

Multinational Finance Journal, 2008

The quality of corporate governance has been shown to have wide-ranging implications, e.g., on the performance of stock markets and on exchange rates. This study investigates whether the quality of corporate governance in a country impacts investment decisions made at the micro level of the firm. The study focuses on Asian emerging markets since they have widely varying standards of corporate governance. Based on eight measures of corporate governance, four aggregate indices of corporate governance (business environment, legal environment, investor rights, and an overall measure) are developed for seven countries in the sample drawing on data from published sources. The results indicate that improvements in corporate governance mitigate the dependency of firm investments on their internal resources and facilitate access by firms to capital markets (JEL: G15, G30, G31).

Corporate Governance, Investor Protection, and Firm Performance in Mena Countries

2011

Recent research studying the link between law and evidence showing that firm-level corporate governance finance has concentrated on country-level investor provisions matter more in countries with weak legal protection measures and focused on differences in legal environments. These results suggest that firms can systems across countries and legal families. Klapper and partially compensate for ineffective laws and Love extend this literature and provide a study of firm-enforcement by establishing good corporate governance level corporate governance practices across emerging and providing credible investor protection. The authors' markets and a greater understanding of the environments tests also show that firm-level governance and under which corporate governance matters more. Their performance is lower in countries with weak legal empirical tests show that better corporate governance is environments, suggesting that improving the legal system highly correlated with better operating performance and should remain a priority for policymakers. market valuation. More important, the authors provide This paper-a product of Finance, Development Research Group-is part of a larger effort in the group to study corporate governance around the world. Copies of the paper are available free from the World Bank,

The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries*

The Economic Journal, 2003

We set out to shed light on three conundrums that exist in the literature on investment: why do investments out of different sources of finance earn different returns, why do different studies report different patterns of returns, and why do companies in developing countries make greater use of external capital to finance their investment than do companies in developed countries?

Corporate governance and asset prices in a two-country model

2004

Abstract There is considerable cross-country variation in corporate governance laws protecting outside investors. Studies have shown that weaker protection of outside investors is associated with higher average equity returns and return volatility, particularly in emerging markets. Moreover, Johnson et al.(2000) show that during the East Asian crisis, countries with better investor protection went through a lower depreciation of their currency's exchange rate relative to the US dollar.

Investor protection and country-level governance: cross-country empirical panel data evidence

Economic Research-Ekonomska Istraživanja

Using a cross-sectional sample of yearly observations covering 132 countries over the 2007-2012 period, this article intends to provide empirical evidence that country-level governance has an impact on the strength of investor protection. Also, when proceeding to a multiple regression analysis based on income classification, as defined by the World Bank, one can observe a different behaviour of the relationship between country-level governance (proxied using the principal component analysis method) and the strength of investor protection.

Corporate Governance in Emerging Markets and Its Impact on Finance Performance

Corporate Ownership and Control, 2014

This paper reviews the theoretical framework of Corporate Governance and multiple issues in which it is evaluated such as agency costs, asymmetric information, insider trading, manipulation of earnings, Board of Directors, etc. Finally, it is reviewed the impact of Corporate Governance over cost of equity, capital structure and financial performance

Shareholder Protection, Stock Market Development, and Politics

SSRN Electronic Journal, 2000

This paper presents a political economy model where there is mutual feedback between investor protection and stock market development. Better investor protection induces companies to issue more equity and thereby leads to a broader stock market. In turn, equity issuance expands the shareholder base and increases support for shareholder protection. This feedback loop can generate multiple equilibria, with investor protection and stock market size being positively correlated across equilibria. The model's predictions are tested on panel data for 47 countries over 1993-2002, controlling for country and year effects and endogeneity issues. We also document international convergence in shareholder protection to best-practice standards, and show that it is correlated with cross-border M&A activity, consistent with the model. JEL classification: G34, K22, K42.

Developing Governance and Regulation for Emerging Capital and Securities Markets

2007

This paper discusses various legal and regulatory issues for developing strong capital and securities markets in the transition economies. Toward this end, the paper analyses the available literature, and emphasizes that: (i) the development of corporate governance should be gradual and must take into consideration the customary laws that impact on the ownership structures and related preferences for doing business in the emerging markets; and (ii) the foreign investment policies should be consistent with the development of corporate governance and vice versa.