The purpose of the study is to investigate whether the relationship between financial developmentinvestor protection and corporate commitment to sustainability is related to social. Consistent with theory, better shareholder protection is empirically asso ciated with higher valuation of corporate assets. We develop a dynamic incompletemarkets model where an entrenched insider, facing imperfect investor protection and nondiversifiable illiquid business risk, makes interdependent. Corporate valuation is an advanced finance program designed for senior leaders already familiar with such concepts as net present value npv, internal rate of return irr, free cash flow, discounted cash. Financial development, investor protection, and corporate. Investor protection, corporate investment, and valuation yingcong lan xiaoji liny neng wangz jinqiang yangx november 18, 2017 abstract many rms around the world are managed by controlling shareholders who are entrenched with signicant wealth exposures to their own illiquid businesses. Investor protection laws, accounting and auditing around. Investor protection and corporate valuation porta 2002. Investor protection and corporate valuation porta 2002 the. This book explores the status quo of corporate governance in banking and investor protection from both theoretical and practical perspectives. Leila atwi is the managing partner of business engineering experts b. Corporate governance, investor protection, and performance. Investor protection and corporate governance sciencedirect.
We present a model of the effects of legal protection of minority shareholders and of cash flow ownership by a controlling shareholder on the valuation of firms. Financial contracts involve the commitment of the firm to. A detailed guide to the discipline of corporate valuation. Corporate governance in banking and investor protection. Investor protection and corporate valuation abstract. Prior evidence suggests that investor protection enhances corporate valuation.
Investor protection, ownership, and the cost of capital by. Pdf financial statement analysis and security valuation. Using a sample of rms from 40 countries for the period between 1996 and 2010, we show that investor. Investor protection and value impact of stock liquidity by. More important, the authors provide evidence showing that firmlevel corporate governance provisions matter more in countries with weak legal environments. Investor protection and governance in the valuation of. For a brief overview of the protection offered by sipc, please see the video below. Investor protection and corporate valuation, journal of finance, american. Using the largest firms makes it harder to find the benefits of investor protection for corporate valuation, since large firms have access to substitute mechanisms for limiting their expropriation of minority shareholders, including public scrutiny, reputation.
Investor protection and equity markets sciencedirect. The results of the study imply that policies aimed at strengthening investor protection laws and their enforcement will improve capital allocation and result in higher growth. Financial statement analysis and security valuation, 5 e by. Abstract we present a model of the effects of legal protection of minority shareholders and of cash. In our theoretical model, if investor protection is weak, wealthy investors have an incentive. Investor protection and corporate valuation andrei shleifer. Investor protection and corporate valuation the harvard community has made this article openly available. Bringing together original conclusions with a regional and. Pdf investor protection and corporate valuation researchgate.
Therefore crossborder mergers are an ideal setting to analyze valuation e. We study the effects of investor protection on stock returns and portfolio allocation decisions. A considerable part of the information for valuation is in the financial statements. We present a model of the effects of legal protection of minority shareholders and of cashflow ownership by a controlling shareholder on the valuation of firms. Exercises 9 an overview 1 an overview introduction having read corporate valuation and takeover 2011 or any other texts from the authors bookboon series. Investor protection, corporate investment, and valuation yingcong lan xiaoji liny neng wangz jinqiang yangx november 18, 2017 abstract many rms around the world are managed by controlling.
Investor protection and corporate valuation citeseerx. Corporate governance, investor protection and performance in emerging markets march 2002. Lg 2 discuss the concepts of intrinsic value and required rates of return, and note how they are used. Several recent studies have also established a link between investor protection, insider ownership of cash flows, and corporate valuation. How a company is valued an overview of valuation methods and their application 2 2 investors in publiclytraded companies have the luxury of knowing the value of their investment at. Investor protection, equity returns, and financial. This paper investigates the effect of investor protection on the value impact of stock liquidity. Although the ultimate benefit of legal investor protection for financial development has. Designed for the professional investor who is building an investment portfolio that includes equity, corporate valuation for portfolio investment. We use the origin of a countrys laws and the index of specific legal rules as indicators of shareholder protection. More detailed questions and answers can be found in our investor faqs. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cashflow ownership by the controlling. The model clarifies a number of assumptions needed to obtain empirically valid predictions on corporate ownership patterns, dividend policies, firm valuation, and financial development in the regimes of poor. Corporate governance, investor protection and performance.
Using a sample of firms from 40 countries for the period between 1996 and 2010, we show. Consistent with theory, better shareholder protection is empirically associated with higher valuation of corporate assets. We use the origin of a countrys laws and the index of specific legal rules as. Investor protection, diversification, investment, and. Laporta, rafael, florencio lopezdesilanes, andrei shleifer, and robert w vishny. Human valuation and investment foibles 483 some common biases in. We argue that the legal approach is a more fruitful way to.
Investor protection, corporate investment, and valuation. She has performed several valuation assignments in addition to advisory on financial planning and. Focusing on a key investor protection measure, namely, self. The role of investor protection in corporate governance and accounting harmonization.
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