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Political connections and minority-shareholder protection: Evidence from securities-market regulation in China

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Author Info
Berkman, Henk
Cole, Rebel
Fu, Lawrence

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Abstract

We examine the wealth effects of three regulatory changes designed to improve minorityshareholder protection in the Chinese stock markets. Using the value of a firm’s 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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File URL: http://mpra.ub.uni-muenchen.de/8087/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 8087.

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Date of creation: 31 Mar 2008
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Handle: RePEc:pra:mprapa:8087

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Related research
Keywords: China convergence enforcement expropriation political connections investor protection minority shareholder regulation tunneling

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Find related papers by JEL classification:
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; Capital and Ownership Structure

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