Do Good Governance Provisions Shelter Investors from Contagion? Evidence from the Russian Crisis

Abstract

This paper studies how the Russian crisis of 1998 affected listed firms in transition economies. The data cover 417 companies that were listed before the Russian crisis, and include financial, industry, ownership, and stock market information. Results show that stock returns were lower for firms competing with imports from Russia, for firms exporting products to Russia, for more levered firms, for firms without a foreign blockholder, and for firms operating in countries with poor legal shareholder protection. The paper presents evidence that both firm- and country-level characteristics are important in overcoming the effects of a crisis. Firm-specific characteristics, however, play a bigger role for companies operating in countries with weaker corporate governance. The data show that, for most of the firm characteristics, more exposed companies in countries with better investor protection perform at least as good as or better than less exposed firms in countries with weaker investor protection.

Keywords: Russian crisis, contagion, transition economies, corporate governance

JEL Classification: F30, G15, G30