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Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China

Published online by Cambridge University Press:  21 September 2010

Henk Berkman ,
Rebel A. Cole  and
Lawrence J. Fu
Henk Berkman
Affiliation:
Business School, University of Auckland, Private Bag 92019, Auckland 1142, New Zealand. [email protected]
Rebel A. Cole
Affiliation:
Kellstadt College of Commerce, DePaul University, 14 E. Jackson Blvd., Ste. 900, Chicago, IL 60604. [email protected]
Lawrence J. Fu
Affiliation:
Australia and New Zealand Banking Group Limited, Floor 32, Tower 3, China Central Place, No. 77 Jianguo Rd., Chaoyang District, Beijing 100025, People’s Republic of China. [email protected]
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Abstract

We examine the wealth effects of 3 regulatory changes designed to improve minority-shareholder protection in the Chinese stock markets. Using the value of a firm’s related-party transactions as an inverse proxy for the quality of corporate governance, wefind that firms with weaker governance experienced significantly larger abnormal returns around announcements of the new regulations than did firms with stronger governance. We also find that firms with strong ties to the government did not benefit from the regulations, suggesting that minority shareholders did not expect regulators to enforce the new rules on firms where blockholders have strong political connections.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 45 , Issue 6 , December 2010 , pp. 1391 - 1417
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2010

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