Corporate Governance and Investment: Evidence from Russian Unlisted Firms

52 Pages Posted: 17 Mar 2017

See all articles by Carsten Sprenger

Carsten Sprenger

University of Glasgow; New Economic School (NES)

Olga Lazareva

University of Michigan at Ann Arbor

Date Written: March 17, 2017

Abstract

This paper investigates how corporate governance of unlisted firms in an emerging market economy affects financing constraints, measured by the sensitivity of investment to cash flow. We develop two original corporate governance indices based on a large-scale survey of Russian enterprises – one for shareholder protection and one for transparency. We estimate standard investment regressions where the cash flow variable is interacted with our corporate governance indices and variables capturing the ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner and in firms with low managerial ownership. In contrast, more transparency exacerbates financing constraints in some cases. We address the problem of the endogeneity of corporate governance by using fixed-effects regressions and a novel instrumental variable based on particular legal provisions for corporate governance in Russia depending on the number of shareholders.

Keywords: corporate governance, shareholder protection, transparency, financing constraints, ownership structure

JEL Classification: G31, G32, G34

Suggested Citation

Sprenger, Carsten and Lazareva, Olga, Corporate Governance and Investment: Evidence from Russian Unlisted Firms (March 17, 2017). Higher School of Economics Research Paper No. WP BRP 160/EC/2017, Available at SSRN: https://ssrn.com/abstract=2934786 or http://dx.doi.org/10.2139/ssrn.2934786

Carsten Sprenger (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

New Economic School (NES) ( email )

3, Nobel st.
Innovation Center, Skolkovo
Moscow, Skolkovo 121205
Russia

Olga Lazareva

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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