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Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China

Author

Listed:
  • Berkman, Henk
  • Cole, Rebel A.
  • Fu, Lawrence J.

Abstract

We examine the wealth effects of 3 regulatory changes designed to improve minority-shareholder 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, wefind that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. We also find that firms with strong ties to the government did not benefit from the regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where blockholders have strong political connections.

Suggested Citation

  • Berkman, Henk & Cole, Rebel A. & Fu, Lawrence J., 2010. "Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(6), pages 1391-1417, December.
    • Handle: RePEc:cup:jfinqa:v:45:y:2011:i:06:p:1391-1417_00
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    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; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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