Do good governance provisions shelter investors from contagion?
Evidence from the Russian crisis1


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    I am grateful to two anonymous referees, Clas Bergström, Mariassunta Giannetti and seminar participants at the Stockholm School of Economics for useful comments, and to Alexander Alekseev for Russian trade data. Aleksei Avanessov, Kristine Kolosovska and Vilma Midveryte provided excellent research assistance. Financial support from Handelsbankens Forskningsstiftelse and CERGE-EI Foundation (under a program of the Global Development Network) is gratefully acknowledged.


This paper studies how the Russian crisis of 1998 affected listed firms in transition economies. The data cover 394 companies that were listed before the Russian crisis, and include financial, industry, ownership and stock market information. Results show that in the short term (within one month of the crisis) good governance did not shelter investors from contagion. On the contrary, stock returns during the crisis period were lower for the largest and most liquid stocks and markets in the region irrespective of their direct exposure to Russia. The paper also documents that in the longer term (one year after the crisis) recovery was faster in firms without direct trade exposure to Russia, as well as in firms with better firm-level governance as proxied by the presence of a foreign blockholder. The paper presents evidence that both firm- and country-level characteristics are important in overcoming the effects of a crisis. Firm-specific characteristics, however, play a bigger role for companies operating in countries with weaker corporate governance.