To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation

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 opportunities, external financing, and ownership stru...

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Bibliographic Details
Published in:The Journal of finance (New York) 2005-06, Vol.60 (3), p.1461-1493
Main Authors: DURNEV, ART, KIM, E. HAN
Format: Article
Language:English
Subjects:
Business structures
Business valuation
Cash flow
Corporate governance
Correlation analysis
Data analysis
Disclosure
Economic models
Empirical research
External financing
Financial economics
Financial investments
Financial reporting
Firm theory
Governance
Government relations
Investors
Manycountries
Mathematical methods
Mathematical models
Ownership and control
Sales growth
Shareholders
Stock prices
Studies
Transparency
Valuation
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Summary: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 opportunities, 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 relations are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.
ISSN:0022-1082
1540-6261
DOI:10.1111/j.1540-6261.2005.00767.x