Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China
AbstractWe examine the wealth effects of three regulatory changes designed to improve minorityshareholder protection in the Chinese stock markets. Using the value of a firmâs related-party transactions as an inverse proxy for the quality of corporate governance, we find that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. This evidence indicates that securities-market regulation can be effective in protecting minority shareholders from expropriation in a country with weak judicial enforcement. We also find that firms with strong ties to the government did not benefit from the new regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where block holders have strong political connections.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.
Volume (Year): 45 (2011)
Issue (Month): 06 (January)
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Other versions of this item:
- Berkman, Henk & Cole, Rebel & Fu, Lawrence, 2008. "Political connections and minority-shareholder protection: Evidence from securities-market regulation in China," MPRA Paper 8087, University Library of Munich, Germany.
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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