Investor Protection and the Value of Shares: Evidence from Statutory Rules Governing Variations of Shareholders' Class Rights in an Emerging Market

Abstract

This article uses a quasi-experimental framework provided by recent changes in Russian corporate law to study the effect of investor protection on the value of shares. The legal change analyzed involves the empowerment of nonvoting shareholders to veto unfavorable changes to their class rights. We take advantage of the presence of well-defined treatment and control groups and use the voting premium, a traditional measure of private benefits of control and shareholder expropriation, as the outcome variable. Based on a novel hand-collected dataset of dual-class stock companies in Russia and using a difference-in-difference regression analysis as well as an event study, we find a statistically and economically significant effect of improved protection of preferred shareholders on the value of their shares. The result is robust to several changes in the empirical specification. (JEL G30, G38, K22) The Author 2012. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oup.com, Oxford University Press.