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Legal protection of investors, corporate governance, and investable premia in emerging markets

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Author Info

  • Stephen Kinsella

    (Department of Economics, Kemmy Business School, University of Limerick)

  • Thomas O'Connor

    (Department of Economics, Finance and Accounting, National University of Ireland, Maynooth)

  • Vincent O'Sullivan

    (Department of Economics, Kemmy Business School, University of Limerick)

Abstract

We examine the interaction between the legal protection of investors, corporate governance within firms, institutional development between countries, and investable premia in emerging markets. In a multi country setting and using a novel dataset we find that better-governed firms experience significantly greater stock price increases upon equity market liberalization. We look to see whether well-governed firms in poorly governed countries enjoy an investability premium as measured by Tobin’s q. We find they do. Investors look beyond the seemingly weak country-level governance structures, and focus on corporate governance.

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Bibliographic Info

Paper provided by Geary Institute, University College Dublin in its series Working Papers with number 201117.

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Length: 35 pages
Date of creation: 22 Aug 2011
Date of revision:
Handle: RePEc:ucd:wpaper:201117

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Keywords: Investability; Corporate Governance; Tobin's q; Emerging Markets;

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  1. Gozzi, Juan Carlos & Levine, Ross & Schmukler, Sergio L., 2008. "Internationalization and the evolution of corporate valuation," Journal of Financial Economics, Elsevier, vol. 88(3), pages 607-632, June.
  2. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2001. "Emerging equity markets and economic development," Journal of Development Economics, Elsevier, vol. 66(2), pages 465-504, December.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  4. Bae, Kee-Hong & Goyal, Vidhan K., 2010. "Equity market liberalization and corporate governance," Journal of Corporate Finance, Elsevier, vol. 16(5), pages 609-621, December.
  5. Lopez-de-Silanes, Florencio & Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei, 2008. "The Law and Economics of Self-dealing," Scholarly Articles 2907526, Harvard University Department of Economics.
  6. Art Durnev & E. Han Kim, 2007. "Explaining Differences in the Quality of Governance Among Companies: Evidence from Emerging Markets," Journal of Applied Corporate Finance, Morgan Stanley, vol. 19(1), pages 16-24.
  7. Lins, Karl V., 2003. "Equity Ownership and Firm Value in Emerging Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 159-184, March.
  8. Durnev, Art & Kim, E. Han, 2004. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," CEI Working Paper Series 2004-7, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  9. Ronald W. Masulis & Cong Wang & Fei Xie, 2009. "Agency Problems at Dual-Class Companies," Journal of Finance, American Finance Association, vol. 64(4), pages 1697-1727, 08.
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