Expropriation risk by block holders, institutional quality and expected stock returns

Bruce Hearn, Kate Phylaktis and Jenifer Piesse

Journal of Corporate Finance, 2017, vol. 45, issue C, 122-149

Abstract: We study the asset pricing implications arising from imperfect investor protection using a new governance measure. This is defined as the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 4756 blue chip firms from 50 international equity markets for 13years, we show through tests of variants of the augmented-CAPM, that a two factor CAPM augmented with a factor mimicking portfolio based on our new investor protection metric yields the highest explanatory power, especially for markets that exhibit true variation in ownership types.

Keywords: Investor protection; Legal origin; Asset pricing; International financial markets (search for similar items in EconPapers)
JEL-codes: G11 G12 G15 G3 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:45:y:2017:i:c:p:122-149

DOI: 10.1016/j.jcorpfin.2017.04.016

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