A Cross-Firm Analysis of the Impact of Corporate Governance甲肝是什么
on the East Asian Financial Crisis
Todd Mitton*
Marriott School
Brigham Young University
扣盘扪烛Abstract
In a sample of 398 firms from Indonesia, Korea, Malaysia, the Philippines, and Thailand, firm-level differences in variables related to corporate governance had a strong impact on firm performance during the East Asian financial crisis of 1997-1998. Significantly better stock price performance is associated with firms that had indicators of higher disclosure quality (ADRs and auditors from Big Six accounting firms), with firms that had higher outside ownership concentration, and with firms that were focud rather than diversified. The results suggest that individual firms have some power to preclude expropriation of minority shareholders if legal protection is inadequate.
JEL classification: G15, G32, G34
Key words: Financial cris, corporate governance, disclosure, ownership structure, diversification
* I am grateful to Simon Johnson, Sendhil Mullainathan, David Scharfstein, and Jeremy Stein for advice and encouragement, and to Simeon Djankov, Kristin Forbes, Ken French, Kathy Kahle, S.P. Kothari, Grant McQueen, Andrei Shleifer, Keith Vorkink, Marc Zenner, an anonymous referee, and minar participants at MIT, Brigham Young University, the University of Illinois at Urbana-Champaign, the University of Pittsburgh, and Texas A&M University for helpful comments. I thank Simeon Djankov for making data available that is ud in Panel C of Table 3. This is a revid version of a chapter of my MIT disrtation. All errors are mine. Todd Mitton, BYU Marriott School, 673 TNRB, Provo, UT 84602, Phone: (801) 378-1763, Fax: (801) 378-5984, E-mail:
todd.mitton@byu.edu.
1. Introduction
Weak corporate governance has frequently been cited as one of the caus of the East Asian financial crisis of 1997-1998.1 While weak corporate governance may not have triggered the East Asian crisis, the corporate governance practices in East Asia could have made countries more vulnerable to a financial crisis and could have exacerbated the crisis once it began. Recent rearc
倒垂帘h has highlighted the importance of corporate governance in emerging markets. La Porta, Lopez-de-Silanes, Shleifer, and Vishny (LLSV 1997, 1998, 1999, 2000) demonstrate that, across countries, corporate governance is an important factor in financial market development and firm value. Regarding the East Asian crisis, Johnson, Boone, Breach, and Friedman (JBBF 2000) show that country-specific measures of corporate governance perform better than standard macroeconomic variables at explaining the extent of currency depreciation and stock market decline of emerging markets during the crisis.
If corporate governance was a significant factor in the crisis, then corporate governance should explain not just cross-country differences in performance during the crisis, but also cross-firm differences in performance within countries. In this paper, I u firm-level data from the
five East Asian crisis economies of Indonesia, Korea, Malaysia, the Philippines, and Thailand to study the impact of corporate governance on firm performance during the crisis. Becau the measures of legal protection emphasized in LLSV (1997, 1998, 1999) and JBBF (2000) are country-specific, I examine other aspects of corporate governance that vary at the firm level. I show that the three aspects I examine, disclosure quality, ownership structure, and corporate diversification, all had a significant impact on the stock price performance of firms during the crisis. Becau the crisis
was, by all accounts, an unexpected event, it prents an interesting
1 Examples include Stiglitz (1998), Harvey and Roper (1999), and Greenspan (1999).
opportunity to study the proximate effect of corporate governance on firm performance during a period of extreme distress.
Corporate governance is the means by which minority shareholders are protected from expropriation by managers or controlling shareholders. Corporate governance could become more critical in a financial crisis for two reasons. First, expropriation of minority shareholders could become more vere during a crisis. JBBF (2000) argue that a crisis can lead to greater expropriation becau managers are led to expropriate more as the expected return on investment falls. Second, a crisis could force investors to recognize and take account of weakness in corporate governance that existed all along. Rajan and Zingales (1998) argue that investors ignored weakness of East Asian firms while the region was doing well economically, but quickly pulled out once the crisis began becau they believed the region lacked adequate institutional protection for their investments. For both of the reasons, firms with weaker corporate governance could have lost relatively more value during the crisis.
Anecdotal evidence from the East Asian crisis suggests that expropriation of minority shareholders was prevalent. One example occurred in November 1997 when United Engineers Malaysia (UEM) acquired 32.6% of its financially troubled parent, Renong. UEM minority shareholders interpreted this as a bailout of Renong at an inflated price, and UEM’s stock price fell 38% the day the transaction was announced (Straits Times 11/19/97, p. 62). Another example comes from Korea where minority shareholders of Samsung Electronics protested that the firm had been providing debt guarantees to less-successful Samsung group companies and that the guarantees often were not disclod (The Economist 3/27/99, p. 68). JBBF (2000) document other instances of expropriation of minority shareholders during the crisis, and Johnson, La Porta, Lopez-de-Silanes, and Shleifer (2000) describe different forms that expropriation can take. This paper considers whether the prence of firm-level characteristics
related to corporate governance can help prevent such instances of expropriation and, in turn, prerve firm value during a crisis.
英语自我介绍The first firm-level characteristic that I study, disclosure quality, is an important element
of corporate governance. LLSV (1998) argue that accounting standards play a critical role in corporate governance by informing investors and by making contracts more verifiable. While
LLSV (1998) and JBBF (2000) employ country-specific measures of accounting standards, I propo two firm-specific ways in which disclosure quality can be measured. First, a firm may
have higher disclosure quality if it has a listed American depository receipt (ADR). This higher disclosure quality can emerge formally, through mandated disclosure requirements of the listing exchange (for level II and III ADRs), or informally, through a larger pool of investors spurring incread demand for disclosure and incread scrutiny of the firm’s reports (e Coffee, 1999). Ree and Weisbach (2001) argue that incread protection of minority shareholders is a primary motivation for non-U.S. firms to cross-list in the U.S. (e also Stulz, 1999).富贵竹的作用
Second, a firm may have higher disclosure quality if its auditor is one of the Big Six2 international accounting firms. Previous rearch (e.g. Reed, Trombley, and Dhaliwal, 2000; Titman and Trueman, 1986) has associated Big Six auditors (or Big Eight auditors, for earlier years) with higher audit quality. The Big Six firms may be more likely to ensure transparency
and eliminate mistakes in a firm’s financial statements becau they have a greater reputation to uphold (Michaely and Shaw, 1995), becau they may be more independent than local firms, and becau they face greater legal liability for making errors (Dye, 1993). Additionally, even in
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cas in which actual disclosure quality is not higher, Big Six auditors may offer higher
2 Six major accounting firms remained at the outt of the crisis as the Price Waterhou/Coopers & Lybrand merger did not occur until late 1997.
perceived disclosure quality and allay investors’ fears becau of their prominent, recognizable names (e Rahman, 1998).
I find that the proxies for higher disclosure quality are associated with significantly better stock price performance during the crisis period (July 1997 to August 1998). Regression analysis shows that having an ADR is associated with a higher return of 10.8% over the crisis period, and having a Big Six auditor is associated with an additional higher return of 8.1% over the crisis period (after controlling for size, leverage, country, and industry). While alternative interpretations (discusd later) are possible, this finding is consistent with the view that higher disclosure quality benefits minority shareholders by increasing transparency and mitigating expropriation during a period of distress.
The cond aspect of corporate governance that I study is ownership structure. I first consider levels of ownership concentration. Shleifer and Vishny (1997) argue that ownership concentration is,
along with legal protection, one of two key determinants of corporate governance. Large shareholders can benefit minority shareholders becau they have the power and incentive to prevent expropriation. On the other hand, large shareholders can themlves engage in expropriation. La Porta, Lopez-de-Silanes, and Shleifer (1999) find high degrees of ownership concentration in firms from countries with relatively poor shareholder protection, and argue that the conflict between large shareholders and minority shareholders is the primary corporate governance problem in such countries. Morck, Strangeland, and Yeung (2000) and Bebchuk, Kraakman, and Triantis (2000) discuss how controlling shareholders may pursue objectives that are at odds with tho of minority shareholders.
Consistent with the view that large shareholders can prevent expropriation, I find that higher ownership concentration is associated with significantly better stock price performance during the crisis. Regressions show a higher return of 2.6%, on average, for every increa of怎样去除水垢>拥抱你的微笑
