Ownership Structure, Corporate Governance, And Firm Value: Evidence from the East Asian Financial Crisis

We study the effect of ownership structure on firm value during the East Asian financial crisis that began in July 1997. The crisis represents a negative shock to the investment opportunities of firms in these markets that raises the incentives of controlling shareholders to expropriate minority shareholders. Moreover, the large separation between cash flow and control rights that often arise from the use of pyramidal ownership structures and cross-holdings in these markets suggests that insiders have both the incentive and the ability to engage in expropriation. Using data from over 800 firms in eight East Asian countries, we find evidence consistent with this view. Tobin's Q ratios of those firms in which minority shareholders are potentially most subject to expropriation decline twelve percent more than Q ratios in other firms during the crisis period. A similar result holds for stock returns - firms in which minority shareholders are most likely to experience expropriation underperform other firms by about nine percent per year during the crisis period. Further, during the pre-crisis period we find no evidence that firms with a separation between cash flow rights and control rights exhibit performance changes different from firms with no such separation. All of these results are robust to controls for country and industry effects, as well as proxies for differences in risk across firms and the strength of the country's legal institutions. The evidence indicates that corporate ownership structure plays an important role in determining the incentives of insiders to expropriate minority shareholders during the times of declining investment opportunities. Our results add to the literature that examines the link between ownership structure and firm performance and provide additional guidance to policymakers engaged in the ongoing debate about the proper role and design of corporate governance features and legal institutions in developing economies.http://deepblue.lib.umich.edu/bitstream/2027.42/39777/3/wp393.pd

Ownership Structure, Corporate Governance, And Firm Value: Evidence from the East Asian Financial Crisis

We study the effect of ownership structure on firm value during the East Asian financial crisis that began in July 1997. The crisis represents a negative shock to the investment opportunities of firms in these markets that raises the incentives of controlling shareholders to expropriate minority shareholders. Moreover, the large separation between cash flow and control rights that often arise from the use of pyramidal ownership structures and cross-holdings in these markets suggests that insiders have both the incentive and the ability to engage in expropriation. Using data from over 800 firms in eight East Asian countries, we find evidence consistent with this view. Tobin's Q ratios of those firms in which minority shareholders are potentially most subject to expropriation decline twelve percent more than Q ratios in other firms during the crisis period. A similar result holds for stock returns - firms in which minority shareholders are most likely to experience expropriation underperform other firms by about nine percent per year during the crisis period. Further, during the pre-crisis period we find no evidence that firms with a separation between cash flow rights and control rights exhibit performance changes different from firms with no such separation. All of these results are robust to controls for country and industry effects, as well as proxies for differences in risk across firms and the strength of the country's legal institutions. The evidence indicates that corporate ownership structure plays an important role in determining the incentives of insiders to expropriate minority shareholders during the times of declining investment opportunities. Our results add to the literature that examines the link between ownership structure and firm performance and provide additional guidance to policymakers engaged in the ongoing debate about the proper role and design of corporate governance features and legal institutions in developing economies.

Do Foreigners Invest Less in Poorly Governed Firms?

As domestic sources of outside finance are limited in many countries around the world, it is important to understand the factors that influence whether foreign outside investors provide capital to a country's firms. This study examines whether and why investor concern about corporate governance results in fewer foreign holdings. We use a comprehensive set of foreign holdings by U.S. investors as a proxy for foreign investment and analyze a sample of 4,411 firms from 29 emerging market and developed economies. We find that foreigners invest significantly less in firms that are poorly governed, i.e., firms that have ownership structures that are more conducive to outside investor expropriation. Interestingly, this finding is not simply a matter of a country's economic development but appears to be directly related to a country's information rules and legal institutions. We therefore argue that information problems faced by foreign investors play an important role in this result. Supporting this explanation, we show that foreign investment is lower in firms that appear to engage in more earnings management.

Social capital, trust, and firm performance: the value of corporate social responsibility during the financial crisis

During the 2008-2009 financial crisis, firms with high social capital, measured as corporate social responsibility (CSR) intensity, had stock returns that were four to seven percentage points higher than firms with low social capital. High-CSR firms also experienced higher profitability, growth, and sales per employee relative to low-CSR firms, and they raised more debt. This evidence suggests that the trust between the firm and both its stakeholders and investors, built through investments in social capital, pays off when the overall level of trust in corporations and markets suffers a negative shock

The Bond Market Benefits of Corporate Social Capital

We investigate whether a firm’s social capital, and the trust that it engenders, are viewed favorably by bondholders. Using firms’ corporate social responsibility (CSR) activities to proxy for social capital, we find no relation between CSR and bond spreads over the period 2005-2013. However, during the 2008-2009 financial crisis, which represents a shock to trust and default risk, high-CSR firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt. During the crisis, high-CSR firms were also able to raise more debt at lower spreads, better credit ratings, and longer maturities

Trust, social capital, and the bond market benefits of ESG performance

We investigate whether a firm’s social capital and the trust that it engenders are viewed favorably by bondholders. Using firms’ environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006–2019. However, during the 2008–2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market

Does family control matter? International evidence from the 2008-2009 financial crisis

We study whether and how family control affects valuation and corporate decisions during the 2008–2009 financial crisis using a sample of more than 8,500 firms from 35 countries. We find that family-controlled firms underperform significantly, they cut investment more relative to other firms, and these investment cuts are associated with greater underperformance. Further, we find that within family groups liquidity shocks are passed on through investment cuts across the group. Our evidence is consistent with families taking actions to increase the likelihood that the firms under their control and their control benefits survive the crisis, at the expense of outside shareholders

The Association of Mid-Regional Pro-Adrenomedullin and Mid-Regional Pro-Atrial Natriuretic Peptide with Mortality in an Incident Dialysis Cohort

High levels of the plasma peptides mid-regional pro-adrenomedullin (MR-proADM) and mid-regional pro-atrial natriuretic peptide (MR-proANP) are associated with clinical outcomes in the general population. Data in patients with chronic kidney disease are sparse. We therefore investigated the association of MR-proANP and MR-proADM levels with all-cause and cardiovascular (CV) mortality, CV events and peripheral arterial disease in 201 incident dialysis patients of the INVOR-Study prospectively followed for a period of up to more than 7 years. The overall mortality rate was 43%, thereof 43% due to CV events. Both baseline MR-proANP and MR-proADM were associated with higher risk of all-cause (HR = 1.44, p = 0.001 and HR = 1.32, p = 0.002, respectively) and CV mortality (HR = 1.75, p<0.001 and HR = 1.41, p = 0.007, respectively) after adjustment for age, sex, previous CV events, diabetes mellitus and time-dependent type of renal replacement therapy. We then stratified patients in high risk (both peptides in the upper tertile), intermediate risk (only one of the two peptides in the upper tertile) and low risk (none in the upper tertile). Although demographic, clinical and laboratory variables were similar among the intermediate and high risk group, to be with both parameters in the upper tertile was associated with a 3-fold higher risk for all-cause (HR = 2.87, p<0.001) and CV mortality (HR = 3.58, p = 0.001). In summary, among incident dialysis patients MR-proANP and MR-proADM were shown to be associated with all-cause and CV mortality, with the highest risk when both parameters were in the upper tertiles

Renal function stratified dose comparisons of eplerenone versus placebo in the EMPHASIS-HF trial.

BACKGROUND: Current heart failure guidelines recommend target eplerenone dose of 50 mg/day. We have examined the effect of different eplerenone doses based on pre-specified renal function stratification in the Eplerenone in Mild Patients Hospitalization and Survival Study in Heart Failure (EMPHASIS-HF). METHODS AND RESULTS: In EMPHASIS-HF, the target dose of eplerenone/placebo was stratified at randomization according to estimated glomerular filtration rate (eGFR): 50 mg/day if eGFR ≥ 50 mL/min/1.73 m2 and ≤ 25 mg/day if eGFR 30-49 mL/min/1.73 m2 . Patients remained within these dose ranges during the trial (as per stratification). The primary outcome was a composite of heart failure hospitalization or cardiovascular mortality. Eplerenone was superior to placebo within each respective eGFR stratum [eplerenone vs. placebo in the eGFR ≥ 50 mL/min/1.73 m2 stratum: hazard ratio (HR) 0.58, 95% confidence interval (CI) 0.45-0.74; and eplerenone vs. placebo in the eGFR 30-49 mL/min/1.73 m2 stratum: HR 0.62, 95% CI 0.49-0.78; Pinteraction  = 0.89]. Despite receiving lower eplerenone doses, patients in the eGFR 30-49 mL/min/1.73 m2 stratum more often had hyperkalaemia, renal failure events, and drug discontinuation. CONCLUSION: In EMPHASIS-HF the eplerenone dose was stratified according to renal function and the treatment effect was not influenced by renal function: 25 mg/day in patients with eGFR 30-49 mL/min/1.73 m2 was as effective as 50 mg/day in patients with eGFR > =50 mL/min/1.73 m2 . However, patients with impaired renal function experienced more adverse events, despite reveiving lower eplerenone doses. Current guidelines do not recommend tailoring the dose of eplereone according to renal function but the current data suggest they should