Investor protection and corporate control

Abstract

We argue that investor protection changes the relative importance of productivity and scale as drivers of corporate control transfers. Using a large sample of European firms we find that control transfers are more correlated with increasing profitability and less correlated with increasing size when investor protection is strong. This suggests that improving productivity is more important as a driver of acquisitions when investor protection is strong, and alleviating financial constraints or empire building are more important when investor protection is weak. Our evidence is consistent with the idea that good investor protection promotes a more productive use of corporate assets.

Investor Protection Evaluation based on Themes of Corporate Governance Civilization

“…Because information and transparency are the needs of external stakeholders that are formed from the text and content of regulatory actions within the company's structures and increase their level of satisfaction, which leads to the observance of their interests by increasing the effectiveness of internal controls. Results obtained by Wan et al (2020); Corresponding Larrain et al (2018) and Zarrinagar et al (2019). Based on the obtained result, it is suggested that companies try to protect the interests of shareholders by increasing the balancing of participatory structures in the form of strengthening the culture of sociocracy in effective monitoring mechanisms on company performance as an important dimension of corporate governance, shareholder confidence, and trust.…”

“…The first is to ensure profitability, the second is to ensure that their interests are not violated (Nadri and Hosseini, 2016). The stability of laws and regulations, on the one hand, and the effectiveness of corporate governance in overseeing corporate financial and legal performance, are considered important factors in respecting contracts and protecting the minority and majority assets of corporate shareholders (Larrain et al, 2018). Corporate Governance Civilization is considered a structural keyword in the corporate governance system which, by organizing effective mechanisms of board oversight, can lead to Investor Protection and motivate investors to have confidence in the structures of capital market companies.…”

“…It was also found that having a professional identity at work can help strengthen the positive Effect of organizational integration on leadership behavior and organizational excellence. Larrain et al (2018) conducted a study entitled "Investigating the Effect of Protecting Shareholders' Rights from Corporate Control". The study used data from EU companies and was reviewed from 2002 to 2014.…”

Foreign Investor’s Interest and Tax Avoidance: Contingency Perspectives Depended on Country’s Protection Level and Law Systems

“…The level of investor protection is always related to the protection gained from the implementation of regulations and the law, so that if a country has a reasonable level of investor protection, then the country's capital market will be strong (La Porta et al, 2000a). Larrain, Tapia, and Urzúa (2017) found that firms with high investor protection levels have higher productivity than those with weaker protection, resulting in higher profits for the firms with high levels of investor protection. The level of investor protection is a legal regime that acts as a contract filter and varies between countries (Bergman and Nicolaievsky, 2007).…”

Análisis de la Influencia de la Función de Auditoría Interna sobre las Cuotas de Auditoría

“…Secondly, as revealed by La Porta et al (2000), the quality of the legal system for the protection of investors differs between countries, with the legal environment for the protection of investors in Spain being weak (Martínez-Ferrero et al, 2015;Larrain et al, 2017). As suggested by Francis et al (2003), in weak legal environments, internal mechanisms of corporate control may have little credibility in the performance of their functions, an aspect that could affect the trust the external audit places on the internal audit.…”