Corporate Governance and Shareholder Rights in Russia

In an environment where shareholder rights cannot be enforced, management might choose to honour these rights out of self interest. This paper presents evidence from a sample of the 140 largest Russian joint stock companies, of which only a minority of firms do honour shareholder rights. These firms tend to have higher valuations on the equity market. On the other hand, the introduction of shareholder rights reduces the possibilities for management to steal. This paper develops a simple model and gives some empirical evidence on which firms are likely to choose to honour shareholder rights. In particular, I find that larger firms are more likely to honour shareholder rights, possibly because of the expected of stealing profits is smaller as the likelihood of punishment in the case of detection is higher. Furthermore, there is some evidence that large outside blockholders, as well as the state in its role as shareholder, are able to press for shareholder rights.