Legal Environment, Firm-Level Corporate Governance and Expropriation of Minority Shareholders in Asia

33 Pages Posted: 23 Jun 2003

See all articles by Chandrasekhar Krishnamurti

Chandrasekhar Krishnamurti

Nanyang Business School

Aleksandar Sevic

Nanyang Technological University (NTU) - Division of Banking & Finance

Zeljko Sevic

University of Greenwich - The Business School

Abstract

Claessens, Djankov, and Lang (2000) show that corporate control is substantially enhanced by using pyramid structures and cross-holdings by firms in nine East Asian countries. Claessens, Djankov, Fan, and Lang (1999) (CDFL) provide empirical evidence regarding expropriation arising from the separation of cash flow from voting rights in Asian firms. Their analysis suggests a high degree of expropriation in Indonesia, Philippines and Thailand. We re-examine the problem of expropriation in Asian firms reported by earlier research. We explore firm-level governance-control structure interactions, and control-legal environment interaction for a set of Asian firms for which we are able to obtain relevant data for all the required variables. The major contribution of this paper is that it jointly examines ownership-control structure, firm-level governance and country-level legal protection available to external suppliers of capital. Using post-crisis data, we find a strong country effect in governance. In general, high control firms in countries with weak legal protection have lower firm-level governance scores in general. On the other hand, high control firms, in countries which have a stronger legal protection environment, signal their intention to not expropriate minority shareholders' wealth by voluntarily adopting measures to strengthen their discipline and responsibility scores. Contrary to earlier findings, we do not find a relationship between control-ownership wedge and firm value. Furthermore, we do not find any relation between firm-level governance and firm value as measured by Tobin's Q.

Keywords: Corporate Governance, Expropriation, Ownership Structure

JEL Classification: G15, G32, G34

Suggested Citation

Krishnamurti, Chandrasekhar and Sevic, Aleksandar and Sevic, Zeljko, Legal Environment, Firm-Level Corporate Governance and Expropriation of Minority Shareholders in Asia. EFMA 2003 Helsinki Meetings. Available at SSRN: https://ssrn.com/abstract=407847 or http://dx.doi.org/10.2139/ssrn.407847

Chandrasekhar Krishnamurti (Contact Author)

Nanyang Business School ( email )

S3-B1B-76 Nanyang Avenue
Nanyang Technological University
Singapore 639798
Republic of Singapore
(65) 790-5702 (Phone)
(65) 791-3697 (Fax)

Aleksandar Sevic

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore
(65) 6790-4157 (Phone)
(65) 6791-3697 (Fax)

Zeljko Sevic

University of Greenwich - The Business School ( email )

30 Park Row
Greenwich
London, SE10 9LS
United Kingdom
+44-20-8331 82.05 (Phone)
+44 -20-8331 90.05 (Fax)

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