Corporate governance and investment-cash flow sensitivity: Evidence from Russian unlisted firms

Carsten Sprenger and Olga Lazareva

Journal of Comparative Economics, 2022, vol. 50, issue 1, 71-100

Abstract: This paper investigates how corporate governance of unlisted firms in an emerging market economy affects financing constraints, measured by the sensitivity of investment to cash flow. In order to evaluate the quality of corporate governance, we develop two corporate governance indices based on a large-scale survey of Russian enterprises – one for shareholder protection and one for transparency. We estimate standard investment regressions where the cash flow variable is interacted with our corporate governance indices and variables capturing the ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner. In contrast, we do not find such an effect for transparency, which can be partially explained by the threat of hostile takeovers. We address the problem of the endogeneity of corporate governance by using fixed-effects regressions and a novel instrumental variable based on particular legal provisions for corporate governance in Russia depending on the number of shareholders.

Keywords: Corporate governance; Shareholder protection; Transparency; Financing constraints; Ownership structure (search for similar items in EconPapers)
JEL-codes: G31 G32 G34 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:50:y:2022:i:1:p:71-100

DOI: 10.1016/j.jce.2021.05.004

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