Investor Protection and Governance in the Valuation of Emerging Markets Investments

14 Pages Posted: 1 Nov 2017

See all articles by Leila Atwi

Leila Atwi

Business engineering experts (B.e.e.)

Assem Safieddine

American University of Beirut - Olayan School of Business

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: Summer 2017

Abstract

The combination of ineffective corporate governance at the company level and an uncertain legal and regulatory environment can significantly reduce the prices investors are willing to pay when investing in companies in emerging markets. The authors report the findings of their recent survey that asks investment professionals to compare the value of a hypothetical Australian company with that of its identical counterparts located in five emerging markets: Malaysia, Mexico, Saudi Arabia, South Africa, and Iran. The responding investors said they would value the emerging markets investments at discounts from the value of the Australian company that ranged from a low of 13.5% for its Malaysian counterpart to 51.2% for the Iranian company. Moreover, they indicated they would require costs of equity for these investments that were consistent with even larger valuation discounts. The investors' responses to the survey also suggest that corporate governance is especially important in countries with weaker investor protection. Well‐governed companies located in these countries enjoy significant value premiums that can partly offset the negative effect of the poor institutional environments, which suggests there may be a significant payoff for investors that succeed in improving the governance of the companies they invest in.

Suggested Citation

Atwi, Leila and Safieddine, Assem M. and Titman, Sheridan, Investor Protection and Governance in the Valuation of Emerging Markets Investments (Summer 2017). Journal of Applied Corporate Finance, Vol. 29, Issue 3, pp. 89-100, 2017. Available at SSRN: https://ssrn.com/abstract=3061278 or http://dx.doi.org/10.1111/jacf.12253

Leila Atwi (Contact Author)

Business engineering experts (B.e.e.) ( email )

Beirut
Lebanon

Assem M. Safieddine

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961 1 374374 (Phone)

HOME PAGE: http://sb.aub.edu.lb/faculty/nbk.asp

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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