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This paper examines the investment allocation choices of actively-managed U.S. mutual funds in emerging markets after the Asian financial crisis. We analyze both country- and firm-level governance and disclosure policies that influence these investment allocation decisions. At the country-level, we find that U.S. funds invest more in open emerging markets with stronger shareholder rights, legal frameworks and accounting standards. After controlling for country characteristics, U.S. funds are found to invest more in firms that adopt policies resulting in greater transparency and accounting disclosures in addition to characteristics such as size, visibility, and high analyst following. The impact of stronger disclosure and transparency is most pronounced in countries with weaker investor protection. Our results suggest that steps can be taken both at the country and the firm level to create an environment conducive to foreign institutional investment.

We examine a sample of 328 filings of “connected transactions ” between Hong Kong listed companies and their controlling shareholders during 1998-2000. We address three questions: What types of connected transactions are likely to lead to expropriation of minority shareholders? Which firms are more likely to expropriate? Does the market anticipate the expropriation? On average, firms earn significant negative excess returns both around the initial announcement of the connected transactions (from −2.5 percent for firms making cash payments to directors to −5.9 percent for firms selling equity stakes to their controlling shareholders) and during the 12-month period following the announcement (from −7.2 percent for firms acquiring assets from their substantial shareholders to −21.9 percent for firms selling assets to them). Excess returns are significantly negatively related to percentage ownership by the controlling shareholder. They are also significantly negatively related to proxies for information disclosure. The

There is a major debate regarding the role of concentrated family ownership and control in large firms, with three positions suggesting that such concentration is (1) good, (2) bad, or (3) irrelevant for firm value. Why are there such differences? We theorize that the impact of family ownership and control on firm value is associated with the level of shareholder protection embodied in legal and regulatory institutions of a country. Data from 634 publicly listed large family firms in seven Asian countries (Hong Kong, Indonesia,

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Using a dataset of 28,635 firms in 45 countries, this study investigates the motivations for family-controlled business groups. We provide new evidence consistent with the ar-gument that particular group structures emerge not only to perpetuate control, but also to alleviate financing constraints at the country and firm levels. At the country level, family groups, especially those structured as pyramids, are more prevalent in markets with lim-ited availability of capital. At the firm level, investment intensity is greater for firms held in pyramidal rather than in horizontal structures, reflecting the financing advantages of the former. Within a pyramid, internal equity funding, investment intensity, and firm value all increase down the ownership chain. However, group firm performance declines when dual-class shares and cross shareholdings are employed as additional control-enhancing mechanisms. (JEL G15, G32)

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We thank the editor and anonymous reviewers for extremely helpful comments and suggestions. We are also grateful to Steve Kaplan, Lucian Bebchuk, Julian Franks, Eric C. Chang, and the participants of the 2007 Summer Workshop on Industrial Organization and Management Strategy (IOMS) and the 2008 Chinese Economist Society (CES) Annual Meeting in Tianjin for comments. We thank China Center for Financial Research (CCFR) at Tsinghua University for providing Tsinghua Financial Data (THFD) and assistance. All remaining errors are ours.

Traditionally, the impacts of the rights of financial institutions and workers on corporate performance have been analyzed independently. Yet theory clearly indicates that it is the combination of (changes in) relative powers of different stakeholders that affects a firm overall performance. Using U.S. state level and state-industry level data, we investigate how output growth is affected by bank branch deregulation, and change in equity rights and employment protection occurring over the period 1972-1994. We find that financial liberalization positively and greater workers ’ rights ambiguously impact overall state growth. In terms of channels, while the effect of financial liberalization does not differ across industries that vary in external financing dependency, employment protection promotes those industries that are more knowledge (skilled-labor and intangibles)-intensive. The results hold controlling for changes in shareholders ’ rights, which itself is not significant. They suggest that financial liberalization operates mostly through an efficiency channel (re-allocating resources better), while employment protection creates better incentives and encourages more sector-specific, human capital investments. Overall, the results show that the strength of stakeholders ’ protection affects performance through efficiency channels and provide support for a stakeholders ’ view of corporate governance.