Investor Protection and Corporate Valuation


  • Rafael La Porta,

  • Florencio Lopez-De-Silanes,

  • Andrei Shleifer,

  • Robert Vishny

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    • La Porta and Shleifer are from Harvard University, Lopez-de-Silanes from Yale University, and Vishny from the University of Chicago. We thank Altan Sert and Ekaterina Trizlova for research assistance, Malcolm Baker, Simeon Djankov, Edward Glaeser, Simon Johnson, René Stulz, Daniel Wolfenzon, Jeff Wurgler, Luigi Zingales, and three anonymous referees for comments, the NSF for support of this research.


We present a model of the effects of legal protection of minority shareholders and of cash-flow ownership by a controlling shareholder on the valuation of firms. We then test this model using a sample of 539 large firms from 27 wealthy economies. Consistent with the model, we find evidence of higher valuation of firms in countries with better protection of minority shareholders and in firms with higher cash-flow ownership by the controlling shareholder.