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We examine the role of country‐level legal investor protection (i.e., shareholder and creditor protection) on firm investment–cash flow sensitivity (ICFS). Using underexplored research data on investor protection across 21 countries and working with a conservative empirical design, we extend prior literature on the relation between investor protection and ICFS and provide new evidence on how these country‐level attributes interact to explain a firm's ICFS. We find that either the strong legal protection of minority shareholders or the strong legal protection of creditors reduces the sensitivity of investment to internal cash flow. However, in countries with strong levels of both minority shareholder and creditor protection, ICFS increases. Our results remain robust after controlling for several alternative explanations. The results support the argument that overregulation arises when policymakers increase investor protection at levels that lead firms to avoid external sources of finance, hampering firm investment. Our findings suggest that countries face a regulatory trade‐off such that increasing investor protection (either shareholder or creditors protection) enhances financial markets efficiency, but excessive regulation can indeed lead to financial markets inefficiencies. [ABSTRACT FROM AUTHOR]

Based on China's newly established Securities Investor Services Center (CSISC), a minority shareholder protection mechanism, we investigated how the CSISC shareholder influences the ESG performance of listed companies. Using a difference-in-differences analysis for a sample of Chinese listed companies during 2013–2017, we found that the pilot reform of CSISC shareholding has a positive influence on the ESG performance of listed companies. We also found that this effect exists in large companies and in companies in non-high-polluting industries. Besides, analysts' attention, external auditing quality, institutional shareholding, and highly-developed market intermediary and legal systems can strengthen the effect of CSISC shareholding on corporate ESG performance. Our findings inspire regulators in emerging markets to establish suitable mechanisms to protect minority shareholder rights in the long run. [ABSTRACT FROM AUTHOR]

We examine the effect of a regulator‐led advocate for minority shareholders on merger and acquisition (M&A) performance in China. In recent years, the China Securities Regulatory Commission established the China Securities Investor Services Center (CSISC), which began its ownership of 100 shares of public firms in 2016. The CSISC advocates for the interests of minority shareholders proactively. Focusing on abnormal stock returns in M&A announcements, we find that acquirers that have the CSISC as a shareholder (CSISC acquirers) exhibit higher positive abnormal stock returns than non‐CSISC acquirers. Cross‐sectional analysis suggests that the core results are mainly driven by firms with severe agency problems and weak external/internal monitoring, and those not controlled by the state. In addition, we find that CSISC acquirers have better long‐term performance and encounter more M&A failures than non‐CSISC acquirers. Our findings indicate that although the CSISC only holds 100 shares of listed companies, it plays an effective role in monitoring and driving firms to make appropriate M&A decisions. [ABSTRACT FROM AUTHOR]

Controlling shareholders and their activities in publicly traded companies have long stirred debate and controversy. Still dominating the corporate landscape across the world, concentrated ownership has been associated with both extraction of private benefits of control (P.B.C.) and entrepreneurship. Drawing on the theories on corporate control, this article contributes to accomplishing the law’s goal of promoting the entrepreneurial role of controlling shareholders, yet keeping P.B.C. extraction under restraint at the same time in the specific context of intra-group transactions – a breeding ground for both P.B.C. extraction and the implementation of an entrepreneurial idea by corporate controllers. The article submits nuanced and different means of overseeing intra-group transactions in a way that would optimally allow the implementation of a business plan by a controlling shareholder in a corporate group and protect minority shareholders, along with the examination of other issues that are relevant to the oversight of intra-group transactions.

Drawing from the bargaining power hypothesis, we investigate the impact of environmental, social, and governance (ESG) standards on takeover premiums in the international takeover market. Using an international sample of 8336 mergers and acquisitions from 26 bidder countries between 2003 and 2021, we find that bidders with higher pre-deal ESG standards - ESG champions - pay lower premiums to win the bid auction, suggesting that better engagement of stakeholders provides higher bargaining power to ESG champions. Contrary to the stylized fact that bidders destroy shareholder value in mergers and acquisitions, the results show that all bidders are not the same, and those with higher ESG standards enjoy takeover benefits. We also show that board independence and minority shareholder protection are potential channels through which ESG champions pay fair premiums to targets. Finally, the results document that ESG champions select targets from dissimilar industries and engage in cross-border deals to strengthen their reputation among stakeholders. Our results pass several robustness tests and hold after addressing the endogeneity issue. Overall, our findings dispense new evidence on how ESG standards increase the bargaining power of focal firms to negotiate on better terms with targets., Competing Interests: Declaration of competing interest The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper., (Copyright © 2024 The Authors. Published by Elsevier Ltd.. All rights reserved.)

The Latvian Group of Companies Law focuses on creditor and minority shareholder protection and is less concerned with pursuing the interest of the group. This research paper will look at the regulation of group of companies in Latvia. It will question whether the interest of the group is effectively recognised in the Latvian Group of Companies Law. The methodology used will be that of legal doctrinal and comparative research, legal theory method and reform agenda research. The research paper will conclude that creditor protection under Article 27, paragraph 5 of Group of Companies Law (Koncernu likums) is ineffective. [ABSTRACT FROM AUTHOR]

Related party transactions (RPTs) are a primary way for corporate insiders to expropriate company value. Conventional wisdom in corporate law theory holds however that RPTs entered into by directors/managers (rather than controlling shareholders) are of lesser concern in both controlled and dispersedly-owned companies. This article challenges this conventional wisdom and puts forward various other theories under which RPTs entered into by directors/managers remain a significant concern in terms of value-diversion in both share-ownership structures. The article then presents hand-collected data of RPTs entered into by directors/managers who are not significant/controlling shareholders in companies listed on the prime standard of the German stock exchange. This dataset and its evaluation provide preliminary indications and exploratory evidence regarding the threat posed by RPTs entered into by abovementioned persons. Furthermore, up-to-date share-ownership data of those companies and several findings regarding disclosure practices are provided. The article closes with proposing a few regulatory improvements and implications. [ABSTRACT FROM AUTHOR]

• After the China Securities Investor Services Center (CSISC)'s pilot project in early 2016, firms in the three pilot regions experienced a short decrease in tunneling activities. • CSISC's effectiveness is particularly notable in companies with less external governance, limited internal oversight and strong incentives for tunneling. • CSISC serves as compensation for inadequate existing external governance mechanisms. • CSISC also enhances internal oversight effectively. In 2014 the China Securities Investor Services Center (CSISC) was set up to serve as a government-backed entity to represent minority shareholders. Does CSISC achieve its role as a complementary external regulator? We present empirical evidence to show that CSISC can effectively alleviate the severity of the minority shareholder expropriation problem. Further, the effect is particularly noticeable in firms that lack measures to prevent misconduct by blockholders, which implies that CSISC significantly complements existing external regulation. [ABSTRACT FROM AUTHOR]

A fundamental objective of stock market regulation is investor protection, which influences the stability and the degree of development of capital markets. We use eleven years (2006-2016) of panel data from the World Bank, on the evolution of minority shareholders' protection. This paper aims at understanding the connection between regulation and the development of capital markets, both for developed and emerging European Union countries. The results are consistent with some of the results from empirical research in law, demonstrating a positive link between investor protection and stock market development during the analyzed period, after controlling for other drivers of stock market development, such as GDP growth and level of taxation. The results outline the importance of stock market regulation, making clear that minority shareholder regulation and its enforcement should be further improved in the European Union member states.

Agency theory suggests that minority shareholders in private firms are vulnerable to shareholder oppression, which necessitates shareholder protection. This paper investigates a form of shareholder protection, the special representative of minority shareholders, which is used in Finland and Sweden. The special representative is a valuation expert, typically an auditor or a lawyer, who assists minority shareholders in shareholder dissent cases which require judicial appraisal of the minority interest in a firm. The different codes of conduct associated with these professions may manifest themselves in their performance as valuation experts. We examine a comprehensive data set of judicial valuation cases of Finnish private firms, in which the judge learns the valuation estimates of the controlling shareholder, the minority shareholder and the special representative and then issues a verdict on the fair price of the firm's shares. Our findings indicate that the special representative benefits minority shareholders by reducing the gap between the minority shareholders' and the judge's valuation estimates. Our results also suggest that the special representative's professional background may affect how he or she values the company. We find that special representatives who are auditors propose more conservative valuation estimates than lawyers do. [ABSTRACT FROM AUTHOR]

In a firm with concentrated ownership, minority shareholders risk expropriation by controlling shareholders. This expropriation risk reduces firm value. The split-share structural reform of China in 2005 provides an opportunity to exam the relationship between the protection of minority shareholders and firm value. Two previous attempts to make all shares tradeable in the stock market failed. The third attempt in 2005 added terms to protect the interests of minority shareholders. The key changes were the terms of compensation paid to the public shareholders and requiring a twothirds vote of public shareholders necessary for the reform to occur. 237 firms completed the reform by the end of 2005. 32 firms that used compensation other than transferring dividend shares to tradeable shareholders as the only compensation method were excluded from the sample for the ease of comparison. Firms that have B shares or are cross-listed were excluded to avoid price impact from outside the domestic Chinese market. Four initial pilot firms that had an extraordinary increase in price after reform were excluded to avoid influential data. Firms with a re-list date after our examination window were also removed. Finally, 188 out of 237 firms were in our data sample. Firm values before and after reform were calculated based on Tobin's Q model. Multivariable linear regressions were used to examine whether better investor protection offered to the tradeable shareholders leads to a higher increase in firm value after reform. We find a higher voting approval rate is associated with a greater increase in firm value after reform. However, consideration payment does not show such a positive relationship with firm value. This may be because other factors can influence consideration payment. For example, some studies find a lower compensation ratio in firms with a better corporate governance environment. We also do not find positive association with respect to the non-binding complementary commitments made by the controlling shareholders. Our results indicate protection of small investors is important in a concentrated ownership structure, especially when corporate governance is still weak. [ABSTRACT FROM AUTHOR]

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A fundamental objective of stock market regulation is investor protection, which influences the stability and the degree of development of capital markets. We use eleven years (2006-2016) of panel data from the World Bank, on the evolution of minority shareholders' protection. This paper aims at understanding the connection between regulation and the development of capital markets, both for developed and emerging European Union countries. The results are consistent with some of the results from empirical research in law, demonstrating a positive link between investor protection and stock market development during the analyzed period, after controlling for other drivers of stock market development, such as GDP growth and level of taxation. The results outline the importance of stock market regulation, making clear that minority shareholder regulation and its enforcement should be further improved in the European Union member states. [ABSTRACT FROM AUTHOR]

The main goal of the Cross-Border Merger Directive, adopted in 2005, is to facilitate the mergers of companies registered in different Member States. Therefore, a structure that is highly similar to that of the Third Directive on domestic mergers has been adopted. However, according to Article 4.2 of the Directive, the Member States are free to introduce additional protection mechanisms for minority shareholders opposing the merger. This article discusses whether that provision presents an obstacle to the successful implementation of the Directive and argues that additional minority shareholder protection is indeed necessary, considering the low level of harmonisation among Member States' company law systems. [ABSTRACT FROM AUTHOR]

Current reform concerning directors' remuneration relies on improving legal rules and self-regulation to minimise expropriation of minority shareholders. These have prominently focussed on empowering shareholders. Nonetheless, it is unclear as to the extent these reform proposals are compatible within the concentrated shareholding structure. Some of the reforms taking place in developed countries are suited for dispersed shareholding structure and thus transplanting them to emerging economies with concentrated shareholders may be ineffective. Malaysia poses an interesting case study, especially to countries with similar ownership structure as the concentrated shareholding structure raises different agency problems. The issue of protection of minority shareholder rights and the prevention of abuse of the controlling power by paying excessive remuneration to the executives is therefore a subject of due consideration in Malaysia and countries with similar shareholding structures. This article recommends that Malaysia and other emerging countries look into encouraging limited shareholder empowerment in tandem with laws. [ABSTRACT FROM AUTHOR]

This paper presents a model that a firm issues external equity, in the presence of costs of underpricing 'asset in place', and conducts comparative statics analysis of its decision to issue external equity at different levels of minority shareholder protection. In the model, minority shareholder protection influences the stock market outcomes through two channels: The cost of external finance and controller's private benefits. As a result, its effects on different stock market outcomes are heterogeneous. Using a newly assembled panel data with shareholder protection index in 25 countries for 11 years, the empirical part applies system GMM estimator to a dynamic specification and confirms such divergent effects. The minority shareholder protection is negatively correlated with the number of listed firms, but is positively correlated with the stock market capitalization. [ABSTRACT FROM AUTHOR]

Over the past dozen years numerous overseas based businesses with dominant shareholders have become quoted on the London Stock Exchange, prominent examples of which have joined the ‘blue chip’ FTSE 100 stock market index. While this trend has generated concerns about the ‘undermining’ of UK corporate governance and has fostered reform proposals by the Financial Services Authority (FSA) it has thus far escaped academic attention. This article explains why companies with dominant shareholders have been migrating to London and discusses the policy implications. In so doing it shows that the FSA’s proposals mostly cover familiar ground rather than being innovative but maintains that the case for radical reform has in fact not yet been made out. [ABSTRACT FROM PUBLISHER]

This instructional case discusses the process and maneuvers of a going private scheme in which the controlling shareholders of Pacific Century CyberWorks (PCCW) proposed to buy out all the shares of the minority shareholders and to then delist the company. The case highlights the importance of applying accounting knowledge in evaluating the value of a company. It also exposes students to the real-world ethical issues relating to vote manipulation and minority shareholder protection in the voting process of a going private deal. [ABSTRACT FROM AUTHOR]

In December 2011, the Romanian Government Emergency Ordinance (GEO) no.109 reformed the corporate governance of state-owned enterprises (SOE), in a context characterized by the financial difficulty of these entities, and under the pretext of concrete firm performance and privatization engagements assumed in front of the IMF and the EU. Taking into account the no man's land where Romanian SOEs have been operating for the past 22 years, characterized by inconsistent and summary regulations of state-owned enterprises, and also by the lack of political will for privatization in the context of many privatizations' failure, GEO no. 109/2011 represents a genuine reform, a turning point in regulating these entities. [ABSTRACT FROM AUTHOR]

This paper provides a political explanation for the form of corporate governance captured by the degree of minority shareholder protection (MSP). Using a multi-stage game model of three-party competition under proportional electoral systems, I demonstrate that the electoral threshold-the minimum percentage of votes a party must receive to get at least one seat in parliamentary PR systems-is inversely related to the degree of MSP. This finding represents an important modification to formal models in the political economic literature that tends to omit the political process. [ABSTRACT FROM AUTHOR]

This paper investigates whether Italian companies that cross-list in the United States between 1993 and 2005 show (1) a change in their internal policies as anticipated by the bonding hypothesis, (2) an increase in market value, or (3) an increase in the access to capital funds. We use the unique environment created by the 1998 Draghi reform which significantly improved the protection of Italian listed companies' minority shareholders and we further examine the impact of legislated changes in corporate governance in Italy on the decision of Italian companies to cross-list in the United States. Our results indicate that following the Draghi reform (1) firms that cross-list in the United States modify their dividend and cash policies as anticipated by the bonding hypothesis. Contrary to prior research, (2) we do not find evidence that cross-listing serves to enhance shareholder value or (3) is used as a vehicle to more easily access capital funds either before or after the domestic corporate governance is improved. The results of this study provide evidence that country level legislative innovations intended to enhance a weak corporate governance system can be a valid and effective substitute to the bonding mechanism by providing an alternative signal of a firm's quality. [ABSTRACT FROM AUTHOR]

This paper tries to identify the different approaches to corporate governance in Europe and possible changes linked to the 13th directive proposal on takeover bids. After an explanation of what is corporate governance, the paper will expand on what it implies in different states. The debate between authors like Berle and Freeman is not simply a rhetorical one. The means by which one considers what a company is and what its aims are, have consequences for the management structure and the way it defines strategies to reach corporate goals. In the European Union, this debate is currently hotly contested, particularly the takeover bid topic. The EEC proposal on takeover bids is directly inspired by the assumption that the primary duty that directors must seek to fulfil is the creation of shareholder value. The text makes a choice to eradicate companies' defences and requires neutralisation of directors. There is no possibility to act in the name of the 'interest of the company' but the European Parliament added some important elements on this key issue. The European Commission must adopt an 'enlightened' view of corporate governance in its future proposals; to integrate alternative views of company governance is the best way to implement an integrated financial market coherent with the European social project. [ABSTRACT FROM AUTHOR]