Geographic Diversification, Corporate Governance and Cost of Equity Capital
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Published: 2014
Total Pages: 43
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Published: 2014
Total Pages: 43
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Published: 1617
Total Pages: 16
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DOWNLOAD EBOOKAuthor: Kevin C. W. Chen
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Published: 2009
Total Pages: 47
ISBN-13:
DOWNLOAD EBOOKThis study examines the effect of firm-level corporate governance on the cost of equity capital in emerging markets and how the effect is influenced by country-level legal protection of investors. We find that firm-level corporate governance has a significantly negative effect on the cost of equity capital in these markets. In addition, this corporate governance effect is more pronounced in countries that provide relatively poor legal protection. Thus, in emerging markets, firm-level corporate governance and country-level shareholder protection seem to be substitutes for each other in reducing the cost of equity. Our results are consistent with the finding from McKinsey's surveys that institutional investors are willing to pay a higher premium for shares in firms with good corporate governance, especially when the firms are in countries where the legal protection of investors is weak.
Author: 游尚衞
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Published: 2014
Total Pages: 44
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DOWNLOAD EBOOKAuthor: Erica X. N. Li
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Published: 2010
Total Pages: 43
ISBN-13:
DOWNLOAD EBOOKUsing a dynamic asset pricing model with managerial empire-building incentives, this paper shows that the effect of corporate governance on the cost of equity capital is procyclical. In the model, managers seek private benefits and tend to over-invest. Corporate governance serves as a mechanism for shareholders to discipline managers and control overinvestment. Strongly governed firms deviate less from the optimal investment policies and have a higher value of growth options and higher value of disinvestment options than weakly governed firms. Growth options are riskier and disinvestment options are less risky than assets-in-place. A higher value of growth options, therefore, leads to higher stock returns and a higher value of disinvestment options leads to lower stock returns. The net effect of corporate governance on cross-sectional stock returns depends on the relative importance of growth options and disinvestment options to firm value. Because the value of growth options is larger than the value of disinvestment options during expansion and vice versa during contraction, the model predicts a procyclical relation between corporate governance and stock returns.
Author: Stijn Claessens
Publisher:
Published: 1999
Total Pages:
ISBN-13:
DOWNLOAD EBOOKFebruary 1995 More concentrated ownership is generally expected to improve corporate governance. Evidence from Czechoslovakia's mass privatization program supports this hypothesis. Equity prices in the Czech and Slovak Republics are higher when a domestic or foreign investor has majority firm ownership, and lower when ownership is shared among many investors. The 1992 Czechoslovakia mass privatization program involving about 1,500 enterprises and implemented through a voucher scheme with competitive bidding was a bold step in changing the ownership and governance of a large part of the economy. It represents a clear test case of one approach, and other countries may benefit from its lessons. At the time, much skepticism was voiced about mass privatization: it would lead to diffuse ownership, and no effective corporate governance would result. But innovative forces led to the emergence of investment funds that collected much of the individuals' voucher points, leading to a much more concentrated ownership structure. It has been expected that this concentrated ownership would lead to improved corporate governance. But the jury is still out. So far, only limited and largely anecdotal evidence is available on the impact investment funds have on the way firms are being managed. Too little time has passed and too many shocks have occurred (for example, the split of the Czech and Slovak Republics) to expect to find discernible changes in corporate governance on measures of actual firm performance. An alternative approach is to investigate whether firms that ended up with more concentrated ownership -- and possibly improved governance -- sell for higher prices, either in the last voucher round or in the secondary market since then. In a forward-looking financial market, one can expect prices to incorporate the effects of better ownership on future firm performance and associated dividends to shareholders. Put differently, one would expect that two firms with different shareholding structures, but otherwise identical, would trade at different prices -- with the firm with a more concentrated ownership, and presumably better corporate governance, trading at a higher price. On a cross-sectional basis, ownership structure may thus be significant in explaining (relative) share prices. Claessens explores this line of reasoning. Controlling for a number of firm and sector-specific variables, he finds that: * Majority ownership by a domestic or foreign investor has a positive influence on firm prices. * Firms with many small owners have lower prices. * Ownership by many small-scale investors makes it easier for any single investor to establish effective control, but such control does not necessarily translate into higher prices. Claessens provides two possible explanations of why higher prices appear to be associated only with majority ownership by a single investor: * The corporate legal framework and the difficulty in collecting proxy votes in the Czech and Slovak Republics may prevent a small investor from making the necessary changes in the way firms are managed, thus keeping prices low. * Commercial banks are both managers of investment funds and creditors of individual firms. Funds managers may face conflicts of interest and not be interested in increasing the value of equity alone but also the value of credits. This could explain why prices are relatively lower for those firms in which investment funds have effective control. This paper -- a product of the Private Sector and Finance Team, Technical Department, Europe and Central Asia, and Middle East and North Africa Regions -- is part of a larger effort in the Bank to study corporate governance in transition economies.
Author: Mohamed Belkhir
Publisher: International Monetary Fund
Published: 2019-12-04
Total Pages: 44
ISBN-13: 1513519808
DOWNLOAD EBOOKUsing a sample of publicly listed banks from 62 countries over the 1991-2017 period, we investigate the impact of capital on banks’ cost of equity. Consistent with the theoretical prediction that more equity in the capital mix leads to a fall in firms’ costs of equity, we find that better capitalized banks enjoy lower equity costs. Our baseline estimations indicate that a 1 percentage point increase in a bank’s equity-to-assets ratio lowers its cost of equity by about 18 basis points. Our results also suggest that the form of capital that investors value the most is sheer equity capital; other forms of capital, such as Tier 2 regulatory capital, are less (or not at all) valued by investors. Additionally, our main finding that capital has a negative effect on banks’ cost of equity holds in both developed and developing countries. The results of this paper provide the missing evidence in the debate on the effects of higher capital requirements on banks’ funding costs.
Author: Randall K. Morck
Publisher: University of Chicago Press
Published: 2007-11-01
Total Pages: 700
ISBN-13: 0226536831
DOWNLOAD EBOOKFor many Americans, capitalism is a dynamic engine of prosperity that rewards the bold, the daring, and the hardworking. But to many outside the United States, capitalism seems like an initiative that serves only to concentrate power and wealth in the hands of a few hereditary oligarchies. As A History of Corporate Governance around the World shows, neither conception is wrong. In this volume, some of the brightest minds in the field of economics present new empirical research that suggests that each side of the debate has something to offer the other. Free enterprise and well-developed financial systems are proven to produce growth in those countries that have them. But research also suggests that in some other capitalist countries, arrangements truly do concentrate corporate ownership in the hands of a few wealthy families. A History of Corporate Governance around the World provides historical studies of the patterns of corporate governance in several countries-including the large industrial economies of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States; larger developing economies like China and India; and alternative models like those of the Netherlands and Sweden.
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Publisher: Lulu.com
Published: 2004
Total Pages: 294
ISBN-13: 9291316695
DOWNLOAD EBOOKAuthor: Jean-François Hennart
Publisher: Ann Arbor : University of Michigan Press
Published: 1982
Total Pages: 224
ISBN-13:
DOWNLOAD EBOOKStudies the expansion of firms across national boundaries