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To steal or not to steal: firm attributes, legal environment, and valuation (2005)
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| Venue: | Journal of Finance |
| Citations: | 213 - 8 self |
BibTeX
@ARTICLE{Durnev05tosteal,
author = {Art Durnev and E. Han Kim and La Porta and Florencio Lopez-de-silanes and Vojislav Maksimovic and John Mcconnell and Todd Mitton},
title = {To steal or not to steal: firm attributes, legal environment, and valuation},
journal = {Journal of Finance},
year = {2005},
pages = {1461--1493}
}
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Abstract
Data on corporate governance and disclosure practices reveal wide within-country variation that decreases with the strength of investors ’ legal protection. A simple model identifies three firm attributes related to that variation: investment oppor-tunities, external financing, and ownership structure. Using firm-level governance and transparency data from 27 countries, we find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All rela-tions are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices. PREVIOUS STUDIES SHOW THAT BETTER LEGAL PROTECTION for investors is associated with higher valuation of the stock market (La Porta et al. (2002)), higher valuation of listed firms relative to their assets or changes in investments (Wurgler (2000)), and larger listed firms in terms of their sales and assets (Kumar, Rajan, and Zingales (1999)). Furthermore, industries and firms in better legal regimes rely more on external financing to fund their growth
Keyphrases
legal environment external financing stock market listed firm disclosure practice transparency ranking firm attribute poor legal environment la porta simple model identifies firm-level governance wide within-country variation efficient governance practice corporate governance legal regime investor legal protection investment oppor-tunities ownership structure investor-friendly country transparency data
