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Corporate Governance and Investment: Evidence from Russian Unlisted Firms

Listed author(s):
  • Carsten Sprenger

    ()

    (National Research University Higher School of Economics)

  • Olga Lazareva

    ()

    (National Research University Higher School of Economics)

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

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Paper provided by National Research University Higher School of Economics in its series HSE Working papers with number WP BRP 160/EC/2017.

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Length: 52 pages
Date of creation: 2017
Publication status: Published in WP BRP Series: Economics / EC, March 2017, pages 1-52
Handle: RePEc:hig:wpaper:160/ec/2017
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