On Expropriation of Minority Shareholders: Evidence from East Asia

51 Pages Posted: 13 Feb 2000

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Simeon Djankov

London School of Economics & Political Science (LSE); Peter G. Peterson Institute for International Economics

Larry H.P. Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance

Date Written: December 9, 1999

Abstract

We examine the evidence on expropriation of minority shareholders in publicly-traded companies in East Asia, by studying separately the effects of cash-flow and voting rights of the controlling shareholder on market valuation. Higher cash-flow rights are associated with higher valuation, consistent with the findings of Jensen and Meckling (1976) for the effects of concentration of management control in the United States. In contrast, concentration of control rights has a negative effect on firm value, consistent with Morck et al. (1988) and Shleifer and Vishny (1997). Separation of voting from cash-flow rights through the use of dual-class shares, pyramiding, and cross-holdings?is especially associated with lower market values. We conclude that the risk of expropriation is the major principal-agent problem for public corporations in East Asia.

Suggested Citation

Claessens, Stijn and Fan, Po Hung Joseph P. H. and Djankov, Simeon and Lang, Hsien Ping Larry, On Expropriation of Minority Shareholders: Evidence from East Asia (December 9, 1999). Available at SSRN: https://ssrn.com/abstract=202390 or http://dx.doi.org/10.2139/ssrn.202390

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Po Hung Joseph P. H. Fan

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
(852) 26097839 (Phone)
(852) 26035114 (Fax)

Simeon Djankov

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Hsien Ping Larry Lang

The Chinese University of Hong Kong (CUHK) - Department of Finance ( email )

Shatin, N.T.
Hong Kong
+85 2 2609 7761 (Phone)
+85 2 2603 6586 (Fax)

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