Agency Conflicts, Expropriation and Firm Value: Evidence from Securities-Market Regulation in China

Henk, Berkman and Rebel, Cole and Fu, Lawrence (2005): Agency Conflicts, Expropriation and Firm Value: Evidence from Securities-Market Regulation in China.

Abstract

In this study, we examine the wealth effects of regulatory changes intended to improve corporate governance by protecting minority shareholders from expropriation by controlling shareholders. Using data from publicly traded Chinese firms, we find that these new regulations significantly increased firm value, and that firms with weak governance disproportionately benefited relative to firms with strong governance. Our evidence provides new support for the theory of La Porta et al. (2002) that better investor protection results in higher firm valuations. It also is supportive of the theory of Glaeser, Johnson and Shleifer (2001) that securities-market regulation can create substantial value for minority shareholders in a country with weak judicial enforcement. Finally, it is consistent with Black and Kraakman (1996), who argue that, in rule-based civil-law countries, regulation in the form of simple “bright-line rules” is more effective than in the form of “broad standards.”

• Item Type: MPRA Paper
• Language: English
• Keywords: agency costs, bright lines, China, convergence, corporate governance, enforcement, expropriation, independent director, investor protection, minority shareholder, regulation, tunneling.
• Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; K - Law and Economics > K2 - Regulation and Business Law > K23 - Regulated Industries and Administrative Law

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