Family control and the implied cost of equity: Evidence before and after the Asian financial crisis
Abstract
Recent research emphasizes that corporate governance becomes critical during economic crises, when the incentives for expropriation of minority shareholders increase. Using the high-profile Asian financial crisis of 1997–1998 and a sample of 566 firms from eight East Asian countries over 1996–1999, we examine the link between family control and agency costs evident in the cost of equity financing for firms. We find that, before the crisis, family control is unrelated to firms' equity financing costs, whereas, following the crisis, family control is related to a higher cost of equity. This suggests that the crisis made investors aware of the potential entrenchment of controlling families, prompting them to require a higher-equity premium from family firms. Our results are robust to various models of the cost of equity capital, additional firm- and country-level governance traits, and additional alternative explanations, including the presence of other types of large shareholders and potential survivorship bias. Our study contributes to our understanding of the corporate governance of family-controlled firms, especially during economic crises.Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic Info
Article provided by Palgrave Macmillan in its journal Journal of International Business Studies.
Volume (Year): 41 (2010)
Issue (Month): 3 (April)
Pages: 451-474
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Order Information:
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Email:
Web: http://www.palgrave-journals.com/pal/subscribe/index.html
Related research
Keywords:References
No references listed on IDEASYou can help add them by filling out this form.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck C.Y. & Mishra, Dev R., 2011. "Does corporate social responsibility affect the cost of capital?," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2388-2406, September.
- Yi Jiang & Mike Peng, 2011. "Principal-principal conflicts during crisis," Asia Pacific Journal of Management, Springer, vol. 28(4), pages 683-695, December.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:pal:jintbs:v:41:y:2010:i:3:p:451-474For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.