XXV Edition

1-2 December 2016"

Investor Protection and Corporate Control

Tapia Matias, Central Bank of Chile and The Pontifical Catholic University of Chile

What is the relationship between investor protection and the impact of control transfers? When investor protection is imperfect, transfers of control can imply a trade-off between alleviating financial constraints and losing productivity. Using a large sample of European firms we find that as investor protection deteriorates control transfers become increasingly associated with asset growth, but also with lower profitability. This suggests that, when investor protection is poor, the wealth of the new controlling shareholder is relatively more important than her productivity. Our evidence is consistent with the idea that good investor protection promotes a more efficient allocation of control.

Area: Capital Structure and Corporate Finance

Keywords: Transfers, efficiency, tradeoff

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