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Do shareholder agreements affect market valuation?

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  • Carvalhal, Andre

Abstract

Shareholder agreements are contracts that govern the relationship among different shareholders in a firm. This article uses a unique dataset to analyze shareholder agreements in listed companies and shows how they affect firm valuation. While shareholder agreements may be used to expropriate value from non-controlling investors, they can also mitigate conflicts of interest and protect minority shareholders. The analysis of a broad time-series and cross-section of Brazilian listed firms provides evidence that the latter effect dominates. We build a shareholder agreement index in order to measure on a firm-level basis the degree of investor protection granted by shareholder agreements. Companies with shareholder agreements have higher valuation and the degree of investor protection granted by shareholder agreements is positively related to firm value, even after controlling for the endogeneity of the firm's decision to adopt shareholder agreements.

Suggested Citation

  • Carvalhal, Andre, 2012. "Do shareholder agreements affect market valuation?," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 919-933.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:919-933
    DOI: 10.1016/j.jcorpfin.2012.04.003
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    More about this item

    Keywords

    Shareholder agreements; Corporate governance; Firm valuation;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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