Going Public without Governance: Managerial Reputation Effects
Posted: 5 Aug 2004
Abstract
This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard.
JEL Classification: G32, G12, D82
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Survey of Corporate Governance
By Andrei Shleifer and Robert W. Vishny
-
The Separation of Ownership and Control in East Asian Corporations
By Stijn Claessens, Simeon Djankov, ...
-
One Share/One Vote and the Market for Corporate Control
By Sanford J. Grossman and Oliver Hart