Institutions, Equity Issuance and Shareholder Value: New International Evidence

Abstract

This international study demonstrates the benefits of strong institutions—such as the rule of law, control of corruption, and shareholder rights—through the lens of equity issuance. Equity issuance is more frequent and growth-inducing under strong governance than weak governance. Cash held by equity issuers creates greater shareholder value under strong governance than weak governance. Notably, under weak governance, cash destroys shareholder value when it is held by equity issuers, instead of non–equity issuers. Overall, strong institutions help small growth firms unlock their value through active equity issuance, whereas weak institutions hinder this process.

Keywords: Governance, strong institutions, equity issuance, cash holdings, shareholder value, external finance

JEL Classification: F30, G32, G34