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Corporate Governance and Investment: Evidence from Russian Unlisted Firms

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  • Carsten Sprenger

    () (National Research University Higher School of Economics)

  • Olga Lazareva

    () (National Research University Higher School of Economics)

Abstract

This paper investigates how corporate governance of unlisted firms in an emerging market economy affects financing constraints, measured by the sensitivity of investment to cash flow. We develop two original corporate governance indices based on a large-scale survey of Russian enterprises – one for shareholder protection and one for transparency. We estimate standard investment regressions where the cash flow variable is interacted with our corporate governance indices and variables capturing the ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner and in firms with low managerial ownership. In contrast, more transparency exacerbates financing constraints in some cases. We address the problem of the endogeneity of corporate governance by using fixed-effects regressions and a novel instrumental variable based on particular legal provisions for corporate governance in Russia depending on the number of shareholders

Suggested Citation

  • Carsten Sprenger & Olga Lazareva, 2017. "Corporate Governance and Investment: Evidence from Russian Unlisted Firms," HSE Working papers WP BRP 160/EC/2017, National Research University Higher School of Economics.
  • Handle: RePEc:hig:wpaper:160/ec/2017
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    More about this item

    Keywords

    corporate governance; shareholder protection; transparency; financing constraints; ownership structure.;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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