Abstract

http://ssrn.com/abstract=318719
 
 

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To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation


Art Durnev


University of Iowa - Henry B. Tippie College of Business

E. Han Kim


University of Michigan, Stephen M. Ross School of Business

April 22, 2003

University of Michigan Working Paper; Tuck-JQFA Contemporary Corporate Governance Issues II Conference

Abstract:     
Newly released data on corporate governance and disclosure practices reveal wide within-country variation, with the variation increasing as legal environment gets less investor friendly. This paper examines why firms practice high-quality governance when law does not require it; firm attributes related to the quality of governance; how the attributes interact with legal environment; and the relation between firm valuation and corporate governance. A simple model, in which a controlling shareholder trades off private benefits of diversion against costs that vary across countries and time, identifies three relevant firm attributes: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data on 859 firms in 27 countries, we find that firms with greater growth opportunities, greater needs for external financing, and more concentrated cash flow rights practice higher-quality governance and disclose more. Moreover, firms that score higher in governance and transparency rankings are valued higher in the stock market. Equally important, all these relations are stronger in countries that are less investor friendly, demonstrating that firms do adapt to poor legal environments to establish efficient governance practices.

Note: Previously titled "Valuation and The Interplay of Firm-specific Factors and Legal Regimes in Corporate Governance and Firm Valuation"

Number of Pages in PDF File: 62

Keywords: Corporate Governance, External Financing, Valuation

JEL Classification: G3, F3, K2, K4

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Date posted: July 26, 2002  

Suggested Citation

Durnev, Art and Kim, E. Han, To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation (April 22, 2003). University of Michigan Working Paper; Tuck-JQFA Contemporary Corporate Governance Issues II Conference. Available at SSRN: http://ssrn.com/abstract=318719 or http://dx.doi.org/10.2139/ssrn.318719

Contact Information

Artyom Durnev (Contact Author)
University of Iowa - Henry B. Tippie College of Business ( email )
108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
(514) 398-5394 (Phone)
(514) 398-3876 (Fax)
HOME PAGE: http://www.artdurnev.com
E. Han Kim
University of Michigan, Stephen M. Ross School of Business ( email )
701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-764-2282 (Phone)
734-763-3117 (Fax)
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