Agency Conflicts, Expropriation and Firm Value: Evidence from Securities-Market Regulation in China

46 Pages Posted: 18 Aug 2003 Last revised: 2 Jan 2014

See all articles by Henk Berkman

Henk Berkman

University of Auckland - Business School

Rebel A. Cole

Florida Atlantic University

Jiang Lawrence Fu

Standard Charter Bank

Date Written: March 1, 2005

Abstract

In this study, we examine the wealth effects of regulatory changes intended to improve corporate governance by protecting minority shareholders from expropriation by controlling shareholders. Using data from publicly traded Chinese firms, we find that these new regulations significantly increased firm value, and that firms with weak governance disproportionately benefited relative to firms with strong governance. Our evidence provides new support for the theory of La Porta et al. (2002) that better investor protection results in higher firm valuations. It also is supportive of the theory of Glaeser, Johnson and Shleifer (2001) that securities-market regulation can create substantial value for minority shareholders in a country with weak judicial enforcement. Finally, it is consistent with Black and Kraakman (1996), who argue that, in rule-based civil-law countries, regulation in the form of simple “bright-line rules” is more effective than in the form of “broad standards.”

Keywords: agency costs, bright lines, China, convergence, corporate governance, enforcement, expropriation, independent director, investor protection, minority shareholder, regulation, tunneling

JEL Classification: G32, G34, G38, K23

Suggested Citation

Berkman, Henk and Cole, Rebel A. and Fu, Jiang Lawrence, Agency Conflicts, Expropriation and Firm Value: Evidence from Securities-Market Regulation in China (March 1, 2005). Available at SSRN: https://ssrn.com/abstract=420763 or http://dx.doi.org/10.2139/ssrn.420763

Henk Berkman

University of Auckland - Business School ( email )

Private Bag 92019
Room: 577
Auckland
New Zealand
(64 9) 3737599 Ext. 7181 (Phone)
(64 9) 3737406 (Fax)

Rebel A. Cole (Contact Author)

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Jiang Lawrence Fu

Standard Charter Bank ( email )

Hong Kong
China

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