Equity Market Liberalization and Corporate Governance

43 Pages Posted: 3 Sep 2010 Last revised: 25 Jul 2014

Kee-Hong Bae

York University - Schulich School of Business

Vidhan K. Goyal

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: August 1, 2010

Abstract

Equity market liberalizations open up domestic stock markets to foreign investors. A puzzle in the literature is why developing countries exhibit relatively small financial impacts associated with liberalizations. We use cross-firm variation in corporate governance at the time of the official liberalization of the equity market in Korea to test whether governance can explain the extent to which firms benefit when countries liberalize. The results show that better-governed firms experience significantly greater stock price increases upon equity market liberalization. Following the liberalization in Korea, foreign ownership in firms with strong corporate governance was significantly higher than that in firms with weak governance. Better-governed firms also exhibit higher rates of physical capital accumulation after liberalization.

Keywords: equity market liberalization, risk sharing, cost of capital, corporate governance

JEL Classification: D23, G21, G32, K42

Suggested Citation

Bae, Kee-Hong and Goyal, Vidhan K., Equity Market Liberalization and Corporate Governance (August 1, 2010). Journal of Corporate Finance, Vol. 16, No. 5, 2010. Available at SSRN: https://ssrn.com/abstract=1670397 or http://dx.doi.org/10.2139/ssrn.1670397

Kee-Hong Bae

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada
416-736-2100 ext) 20248 (Phone)
416-736-5687 (Fax)

Vidhan K. Goyal (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong
852-2358-7678 (Phone)
852-2358-1749 (Fax)

HOME PAGE: http://www.vidhangoyal.com

Paper statistics

Downloads
192
Rank
129,448
Abstract Views
891