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Expropriation risk by block holders, institutional quality and expected stock returns

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  • Hearn, Bruce
  • Phylaktis, Kate
  • Piesse, Jenifer

Abstract

We study the asset pricing implications arising from imperfect investor protection using a new governance measure. This is defined as the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 4756 blue chip firms from 50 international equity markets for 13years, we show through tests of variants of the augmented-CAPM, that a two factor CAPM augmented with a factor mimicking portfolio based on our new investor protection metric yields the highest explanatory power, especially for markets that exhibit true variation in ownership types.

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  • Hearn, Bruce & Phylaktis, Kate & Piesse, Jenifer, 2017. "Expropriation risk by block holders, institutional quality and expected stock returns," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 122-149.
    • Handle: RePEc:eee:corfin:v:45:y:2017:i:c:p:122-149
    DOI: 10.1016/j.jcorpfin.2017.04.016
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    Cited by:

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    3. Xu, Jian & Liu, Yu & Abdoh, Hussein, 2022. "Foreign ownership and productivity," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 624-642.
    4. Hearn, Bruce & Li, Jing & Mykhayliv, Dariya & Waqas, Muhammad, 2021. "Asset pricing in the Middle East’s equity markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).

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    More about this item

    Keywords

    Investor protection; Legal origin; Asset pricing; International financial markets;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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