Investor protection and asset prices

Suleyman Basak, Georgy Chabakauri and M. Yavuz

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Empirical evidence suggests that investor protection has significant effects on ownership concentration and asset prices. We develop a dynamic asset pricing model to address the empirical regularities and uncover the underlying mechanisms at play. Our model features a controlling shareholder who endogenously accumulates control over a firm, and diverts a fraction of its output. In line with empirical evidence, better investor protection decreases stock holdings of controlling shareholders, increases stock mean-returns, and increases stock return volatilities when ownership concentration is sufficiently high. The model also predicts that better protection increases interest rates and decreases leverage.

Keywords: investor protection; asset pricing; controlling shareholders; expropriation; stock holdings (search for similar items in EconPapers)
JEL-codes: G12 G32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2018-10-01
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http://eprints.lse.ac.uk/118917/ Open access version. (application/pdf)

Related works:
Journal Article: Investor Protection and Asset Prices (2019)
Working Paper: Investor Protection and Asset Prices (2019)
Working Paper: Investor protection and asset prices (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118917

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