Expropriation of Minority Shareholders in East Asia

Stijn Claessens · Simeon Djankov · Joseph P. H. Fan · Larry H.P. Lang

91 citations0/0 files storedRePEc: Research Papers in Economics

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Corporate Finance and Governance Financial Markets and Investment Strategies Financial Reporting and Valuation Research

Abstract

We examine the evidence on expropriation of minority shareholders by the controlling shareholder in publicly traded companies in nine East Asian countries. Higher cash-flow rights are associated with higher market valuation. In contrast, higher control rights have an insignificant or negative effect on corporate valuation. Deviations of voting from cash-flow rights through the use of pyramiding, cross-holdings, and dual-class shares, are associated with lower market values. Results are robust to the time period we study, splitting the sample by individual countries, using alternative measures of the incentive for expropriation, and using alternative measures for firm valuation. We conclude that the risk of expropriation is the major principal-agent problem for public corporations in East Asia.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1998Law and Finance 1997A Survey of Corporate Governance 1999Corporate Ownership Around the World 1986Large Shareholders and Corporate Control 1988Management ownership and market valuation 2000The separation of ownership and control in East Asian Corporations 1990Additional evidence on equity ownership and corporate value

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