Firm Value in Crisis: Effects of Firm-Level Transparency and Country-Level Institutions

36 Pages Posted: 19 Nov 2012 Last revised: 4 Mar 2014

See all articles by Ruben Enikolopov

Ruben Enikolopov

Institute of Political Economy and Governance; New Economic School; ICREA; Universitat Pompeu Fabra; Barcelona GSE

Maria Petrova

Institute for Political Economy and Governance, Barcelona; Institució Catalana de Recerca i Estudis Avançats - ICREA; Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE); New Economic School (NES)

Sergey Stepanov

National Research University Higher School of Economics - Faculty of Economics; National Research University Higher School of Economics - International College of Economics and Finance

Date Written: February 28, 2014

Abstract

Recent empirical research suggests that country-level and firm-level governance institutions are substitutes with respect to their effect on firm value. In this paper we demonstrate that during a crisis these institutions may actually become complements. Specifically, we find that the decline in companies' valuation during the financial crisis of 2007-2009 was more sensitive to firm-level transparency in countries with stronger investor protection. We propose a theoretical model that reconciles our findings with the results in the literature. In our model, during "normal times" strong firm-level governance is crucial to attract outside financing in countries with weak investor protection, but is less important in countries with good investor protection. During a crisis, however, investment opportunities decline even in countries with strong investor protection, and, as a result, relative importance of firm-level governance increases in such places.

Keywords: corporate governance, investor protection, financial crisis, firm value, transparency

JEL Classification: G3, G12, G15

Suggested Citation

Enikolopov, Ruben and Petrova, Maria and Stepanov, Sergey, Firm Value in Crisis: Effects of Firm-Level Transparency and Country-Level Institutions (February 28, 2014). Available at SSRN: https://ssrn.com/abstract=2177841 or http://dx.doi.org/10.2139/ssrn.2177841

Ruben Enikolopov

Institute of Political Economy and Governance ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

New Economic School ( email )

Skolkovskoe shosse 45
Moscow, Skolkovo 143026
Russia

ICREA ( email )

Passeig Lluís Companys, 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Barcelona GSE ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Maria Petrova

Institute for Political Economy and Governance, Barcelona ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

Institució Catalana de Recerca i Estudis Avançats - ICREA ( email )

Passeig Lluís Companys, 23
Barcelona, 08010
Spain

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

New Economic School (NES) ( email )

100A Novaya Street
Moscow, Skolkovo 143026
Russia

Sergey Stepanov (Contact Author)

National Research University Higher School of Economics - Faculty of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

National Research University Higher School of Economics - International College of Economics and Finance ( email )

Pokrovski Bulvar 11, Korpus Zh, Office 715
Moscow, 109028
Russia

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