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.

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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This paper critically examines the Greenspan-Summers-IMF thesis concerning the Asian crisis, which suggested that the fundamental causes of the Asian crisis lay in the microeconomic behavior of economic agents in these societies – in the Asian way of doing business. The paper concentrates on corporate governance and competition in emerging markets and outlines the international significance of these issues in the context of the New International Financial Architecture and the Doha Development Round at the WTO. It reviews new analyses and fresh evidence on corporate governance, corporate finance and on competition in emerging and mature markets, to suggest that the basic thesis above is not valid and the consequent policy proposals are therefore deeply flawed.

SSRN Working Paper

Drawing on the agency cost explanation of payout policy, I hypothesize that controlled firms with weak corporate governance set-ups, in which controlling shareholders have strong incentives to expropriate minority shareholders, pay out more and/or tend to prefer dividends over repurchases when disgorging cash. I study a sample of Italian controlled firms and find strong evidence in support of my hypotheses. A firm’s share of dividends in total payout (dividends plus repurchases) is negatively related to the size of the cash flow stake of the firm’s controlling shareholder and positively associated with the wedge between the controlling shareholder’s control rights and cash flow rights. Furthermore, familycontrolled firms, which are less severely affected by agency problems than other Italian controlled firms, choose lower payouts and are characterized by smaller fractions of dividends in total payout.

Corporate Governance agreed on a common position based on the

Are family ownership and control in large firms good,

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 12month 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 likelihood of undertaking connected transactions is higher for firms whose ultimate owners can be traced to mainland China. Finally, we find limited evidence that the market anticipates the expropriation by discounting firms that undertake connected transactions.

We investigate whether controlling shareholders expropriate corporate resources during a financial crisis using the data of Thai firms. Our results are consistent with the argument of Friedman, Johnson, and Mitton (2003) that the propensity to tunnel and prop is higher for business groups in particular if they are organized in pyramids. Specifically, we find that firms that belong to the top 30 business groups implement a number of restructuring activities such as expansion, executive turnover, and dividend cuts, more often than non group firms. Among the business group firms, we find that firms with higher ratio of cash flow rights to voting rights are less likely to implement the following restructuring measures: downsizing, expansion, and executive turnover. Interestingly, even in the business group firms that are not organized in pyramids, debt increases the probability of operational restructuring. This evidence is consistent with the view that debt increases the incentives to prop.