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Investor Protection and Corporate Control

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  • Matías Tapía
  • Borja Larraín
  • Francisco Urzúa

Abstract

What is the relationship between investor protection and the impact of control transfers? When investor protection is imperfect, transfers of control can imply a trade-off between alleviating financial constraints and losing productivity. Using a large sample of European firms we find that as investor protection deteriorates control transfers become increasingly associated with asset growth, but also with lower profitability. This suggests that, when investor protection is poor, the wealth of the new controlling shareholder is relatively more important than her productivity. Our evidence is consistent with the idea that good investor protection promotes a more efficient allocation of control.

Suggested Citation

  • Matías Tapía & Borja Larraín & Francisco Urzúa, 2015. "Investor Protection and Corporate Control," Documentos de Trabajo 467, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:467
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-467.pdf
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    2. Zhang, Yuyang & Uchida, Konari & Dong, Liping, 2020. "External financing and earnings management: Evidence from international data," Research in International Business and Finance, Elsevier, vol. 54(C).
    3. Sertsios, Giorgo, 2020. "Corporate finance, industrial organization, and organizational economics," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Liu, Ruiming & Si, Haiping & Miao, Miao, 2022. "One false step can make a great difference: Does corporate litigation cause the exit of the controlling shareholder?," Journal of Corporate Finance, Elsevier, vol. 73(C).
    5. He, Mingfeng & Huang, Dengshi & Zhou, Jianan, 2023. "The impacts of share pledging on firm investment timing and valuation," International Review of Financial Analysis, Elsevier, vol. 87(C).

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