Stealing from Thieves: Expropriation Risk, Firm Governance, and Performance

46 Pages Posted: 15 Mar 2007 Last revised: 14 Nov 2011

See all articles by Art Durnev

Art Durnev

University of Iowa - Henry B. Tippie College of Business

Larry Fauver

University of Tennessee, Knoxville - Department of Finance; University of Tennessee

Date Written: November 11, 2011

Abstract

We examine firm governance choices and firm valuation in the presence of expropriation risk. We argue that firms have fewer incentives to practice good governance and disclose more information when the state is likely to expropriate firm profits. We empirically confirm our arguments using several comprehensive panel data sets on governance, disclosure practices, and earnings management for companies around the world. To address endogeneity concerns, we apply a difference-in-difference approach and show that firms in industries that are subject to greater risks of expropriation practice worse governance, disclose less information, and manage earnings more. Furthermore, expropriation risk lowers firm value by 3.69% directly and by 2.81% through the deterioration in firm governance.

Keywords: Expropriation, Governance, Disclosure, and Valuation

JEL Classification: G15, G32, G38, K22

Suggested Citation

Durnev, Artyom and Fauver, Larry, Stealing from Thieves: Expropriation Risk, Firm Governance, and Performance (November 11, 2011). 2nd Annual Conference on Empirical Legal Studies Paper. Available at SSRN: https://ssrn.com/abstract=970969 or http://dx.doi.org/10.2139/ssrn.970969

Artyom Durnev (Contact Author)

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
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(514) 398-5394 (Phone)
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HOME PAGE: http://www.artdurnev.com

Larry Fauver

University of Tennessee, Knoxville - Department of Finance ( email )

424 Stokely Management Center
Knoxville, TN 37996
United States

University of Tennessee ( email )

424 Stokely Management Center
Department of Finance
Knoxville, TN 37996-0540
United States
865-974-1722 (Phone)
865-974-1716 (Fax)

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