Fifth Annual Conference of the Institute for East and Southeast European Studies
29 June – 1 July 2017, IOS Regensburg.
Corporate Governance and Investment: Evidence from Russian Unlisted Firms
Ein Vortrag von Carsten Sprenger (Higher School of Economics, Moskau) im Rahmen der Seminarreihe des AB Ökonomie am IOS.
Zeit: 13.30 Uhr
Ort: WiOS, Landshuter Str. 4 (Raum 109)
In this paper, we investigate how firm-level indicators of corporate governance affect financing constraints, measured by the cash flow sensitivity of investment. The focus is on unlisted firms, which represent a large part of the economy, especially in emerging markets, and which are more likely to suffer from asymmetric information problems in accessing external funds for investment. We develop two original corporate governance indices based on two rounds of a large-scale survey of Russian enterprises – one for shareholder protection (including board composition and procedures) and one for transparency (including information disclosure and audit). We estimate standard investment regressions with a proxy for investment opportunities and cash flows as the main independent variables, augmented by interaction terms with our corporate governance indices and variables capturing ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner and in firms with low managerial ownership. In contrast, more transparency might even exacerbate financing constraints in some cases. We address the problem of endogeneity of corporate governance by using fixed-effects regressions and an instrumental variable approach. The latter exploits the particular legal framework in Russia where legal provisions for corporate governance depend on a firm's number of shareholders.