INVESTOR PROTECTION AND CORPORATE VALUATION

INVESTOR PROTECTION AND CORPORATE VALUATION

October 1999 | Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, Robert Vishny
This paper by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny examines the impact of legal protection for minority shareholders and the cash flow ownership of controlling shareholders on corporate valuation. The authors present a theoretical model and test it using data from 371 large firms across 27 wealthy economies. The findings support the model's predictions: better legal protection for minority shareholders leads to higher corporate valuations, while higher cash flow ownership by controlling shareholders also has a positive effect on valuation, though to a lesser extent. The study adds to the literature on the role of investor protection in financial market development and corporate finance, highlighting the importance of both legal protection and shareholder incentives in shaping corporate value.This paper by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny examines the impact of legal protection for minority shareholders and the cash flow ownership of controlling shareholders on corporate valuation. The authors present a theoretical model and test it using data from 371 large firms across 27 wealthy economies. The findings support the model's predictions: better legal protection for minority shareholders leads to higher corporate valuations, while higher cash flow ownership by controlling shareholders also has a positive effect on valuation, though to a lesser extent. The study adds to the literature on the role of investor protection in financial market development and corporate finance, highlighting the importance of both legal protection and shareholder incentives in shaping corporate value.
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