Expropriation Risk by Block Holders, Institutional Quality and Expected Stock Returns

63 Pages Posted: 22 Jan 2016 Last revised: 2 May 2017

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton

Kate Phylaktis

City University London - Sir John Cass Business School

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Date Written: May 1, 2017

Abstract

We study the asset pricing implications arising from imperfect investor protection using a new governance measure. This is defined as the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 4,756 blue chip firms from 50 international equity markets for 13 years, we show through tests of variants of the augmented-CAPM, that a two factor CAPM augmented with a factor mimicking portfolio based on our new investor protection metric yields the highest explanatory power, especially for markets that exhibit true variation in ownership types

Keywords: Investor Protection, Legal Origin, Asset pricing, International Financial Markets

JEL Classification: G11, G12, G15, O55

Suggested Citation

Hearn, Bruce Allen and Phylaktis, Kate and Piesse, Jenifer, Expropriation Risk by Block Holders, Institutional Quality and Expected Stock Returns (May 1, 2017). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2718695 or http://dx.doi.org/10.2139/ssrn.2718695

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Kate Phylaktis

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 70408735 (Phone)
+44 20 70408881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/k.phylaktis/

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

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