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

Kee-Hong Bae, Jae-Seung Baek, Jun-Koo Kang and Wei-Lin Liu

Journal of Financial Economics, 2012, vol. 105, issue 2, 412-435

Abstract: 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.

Keywords: Expropriation; Corporate governance; Firm value; Asian financial crisis; Controlling shareholder; Cash flow rights; Control rights (search for similar items in EconPapers)
JEL-codes: G15 G21 G32 G33 G34 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (67)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:105:y:2012:i:2:p:412-435

DOI: 10.1016/j.jfineco.2012.02.007

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