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Journal of Corporate Finance Vol. 45 2017

Expropriation risk by block holders, institutional quality and expected stock returns

Bruce Hearn1; Kate Phylaktis2,3; Jenifer Piesse2,4,3

1 University of Sussex · 2 City, University of London · 3 Bournemouth University · 4 Stellenbosch University

open access

Abstract

We study the asset pricing implications arising from imperfect investor protection using a new governance measure. This is defined as the product of institutional quality in a country and the proportion of free float shares, which captures the impact of controlling block holders. Using monthly returns of 4756 blue chip firms from 50 international equity markets for 13years, we show through tests of variants of the augmented-CAPM, that a two factor CAPM augmented with a factor mimicking portfolio based on our new investor protection metric yields the highest explanatory power, especially for markets that exhibit true variation in ownership types.

DOI
10.1016/j.jcorpfin.2017.04.016
Volume
45
Pages
122-149
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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