Investor Protection and Asset Prices

Basak, S, Chabakauri, G and Deniz Yavuz, M (2019) Investor Protection and Asset Prices. Review of Financial Studies, 32 (12). pp. 4905-4946. ISSN 0893-9454 OPEN ACCESS

Abstract

Empirical evidence suggests that investor protection has significant effects on ownership concentration and asset prices. We develop a dynamic asset pricing model to address the empirical regularities and uncover some of the underlying mechanisms at play. Our model features a controlling shareholder who endogenously accumulates control over a firm, and diverts a fraction of its output. Better investor protection decreases stock holdings of controlling shareholders, increases stock mean-returns, and increases stock return volatilities when ownership concentration is sufficiently high, consistent with the related empirical evidence. The model also predicts that better protection increases interest rates and decreases the controlling shareholder's leverage.

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Item Type: Article
Subject Areas: Finance
Additional Information:

This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record: Suleyman Basak, Georgy Chabakauri, M Deniz Yavuz, Investor Protection and Asset Prices, The Review of Financial Studies, hhz038, is available online at: https://academic.oup.com/rfs/article/32/12/4905/5418524
DOI: https://doi.org/10.1093/rfs/hhz038

Date Deposited: 03 Apr 2019 20:18
Date of first compliant deposit: 18 Jan 2019
Subjects: A > Asset valuation
I > Investment appraisal
S > Share ownership
Last Modified: 14 Jun 2021 17:43
URI: https://lbsresearch.london.edu/id/eprint/1066
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