Investor Protection and Asset Prices

60 Pages Posted: 7 Mar 2016 Last revised: 7 Mar 2019

See all articles by Suleyman Basak

Suleyman Basak

London Business School; Centre for Economic Policy Research (CEPR)

Georgy Chabakauri

London School of Economics and Political Science

M. Deniz Yavuz

Purdue University - Krannert School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2019

Abstract

Empirical evidence suggests that investor protection has significant effects on ownership concentration and asset prices. We develop a dynamic asset pricing model to address the empirical regularities and uncover some of the underlying mechanisms at play. Our model features a controlling shareholder who endogenously accumulates control over a firm, and diverts a fraction of its output. Better investor protection decreases stock holdings of controlling shareholders, increases stock mean-returns, and increases stock return volatilities when ownership concentration is sufficiently high, consistent with the related empirical evidence. The model also predicts that better protection increases interest rates and decreases the controlling shareholder's leverage.

Keywords: investor protection, asset pricing, controlling shareholders, expropriation, stock holdings

JEL Classification: G12, G32

Suggested Citation

Basak, Suleyman and Chabakauri, Georgy and Yavuz, M. Deniz, Investor Protection and Asset Prices (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=2742961 or http://dx.doi.org/10.2139/ssrn.2742961

Suleyman Basak

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
44 (0)20 7000 8256 (Phone)
44 (0)20 7000 8201 (Fax)

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

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Georgy Chabakauri (Contact Author)

London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://personal.lse.ac.uk/CHABAKAU/

M. Deniz Yavuz

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

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