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Which Investors Fear Expropriation?

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  • Giannetti, Mariassunta

    ()
    (Department of Finance and SITE)

  • Simonov, Andrei

    ()
    (Stockholm School of Economics and SIFR)

Abstract

Using a data set that provides unprecedented details on the stockholders of Swedish listed companies, we analyze whether investors take into account corporate governance when they select stocks. We identify the companies where shareholders’ value is less likely to be maximized by using the wedge between the control and cash flow rights of the principal shareholder. After controlling for the supply effect via free float and firm size, we find that all the categories of investors (domestic and foreign; institutional and small individual investors) who generally enjoy only security benefits are reluctant to invest in companies where the ratio of control to cash flow rights is larger. In contrast, individuals who have strong connections with the local financial community because they are board members or hold large blocks of at least some listed companies behave differently. They do not care about the expected extraction of private benefits or even prefer to invest in firms where there is more room for it.

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Bibliographic Info

Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 10.

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Length: 46 pages
Date of creation: 15 Nov 2002
Date of revision:
Handle: RePEc:hhs:sifrwp:0010

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Keywords: Private Benefits; Security Benefits; Investor Base; Corporate Governance; Portfolio Selection;

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References

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Citations

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Cited by:
  1. Rene M. Stulz, 2006. "Financial Globalization, Corporate Governance, and Eastern Europe," NBER Working Papers 11912, National Bureau of Economic Research, Inc.
  2. Lee Pinkowitz & Rene M. Stulz & Rohan Williamson, 2001. "Corporate Governance and the Home Bias," NBER Working Papers 8680, National Bureau of Economic Research, Inc.
  3. Bong-Chan Kho & René M. Stulz & Francis E. Warnock, 2009. "Financial Globalization, Governance, and the Evolution of the Home Bias," Journal of Accounting Research, Wiley Blackwell, vol. 47(2), pages 597-635, 05.
  4. Fang Cai & Francis E. Warnock, 2006. "International Diversification at Home and Abroad," NBER Working Papers 12220, National Bureau of Economic Research, Inc.
  5. Sercu, Piet & Vanpée, Rosanne, 2011. "The Value of Clean Hands: How to Appeal to International Equity Investors," Working Papers 2011/26, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  6. Robert Campbell & Chinmoy Ghosh & Milena Petrova & C. Sirmans, 2011. "Corporate Governance and Performance in the Market for Corporate Control: The Case of REITs," The Journal of Real Estate Finance and Economics, Springer, vol. 42(4), pages 451-480, May.
  7. Arturo Bris & Christos Cabolis, 2008. "The Value of Investor Protection: Firm Evidence from Cross-Border Mergers," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 605-648, April.
  8. Henrekson, Magnus & Jakobsson, Ulf, 2011. "The Swedish Corporate Control Model: Convergence, Persistence or Decline?," Working Paper Series 857, Research Institute of Industrial Economics.
  9. Pajuste, Anete, 2005. "Determinants and consequences of the unification of dual-class shares," Working Paper Series 0465, European Central Bank.
  10. Karl V. Lins & Francis E. Warnock, 2004. "Corporate governance and the shareholder base," International Finance Discussion Papers 816, Board of Governors of the Federal Reserve System (U.S.).
  11. Henrekson, Magnus & Jakobsson, Ulf, 2003. "The Swedish Model of Corporate Ownership and Control in Transition," Working Paper Series 593, Research Institute of Industrial Economics.
  12. Jung, Chan Shik & Lee, Dong Wook & Park, Kyung Suh, 2009. "Can investor heterogeneity be used to explain the cross-section of average stock returns in emerging markets?," Journal of International Money and Finance, Elsevier, vol. 28(4), pages 648-670, June.

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