To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation



  • E. HAN KIM

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    • Durnev is with University of Miami Business School and Kim is with the University of Michigan Business School, Ann Arbor. The authors are grateful for helpful comments and suggestions by Sugato Bhattacharyya, Serdar Dinç, Mara Faccio, Daniel Ferreira, Michael Fuerst, Kathleen Fuller, Rick Green, Charles Hadlock, Simon Johnson, Elaine Kim, Woochan Kim, Rafael La Porta, Florencio Lopez-de-Silanes, Vojislav Maksimovic, John McConnell, Todd Mitton, M. P. Narayanan, Andrei Shleifer, David Smith, Andrey Ukhov, Michael Weisbach, Daniel Wolfenzon, Bernard Yeung, and especially the referee of the Journal. We also thank the participants of the 2003 American Finance Association Annual Meetings, POSCO Fellowship Seminar at the East-West Center, 8th Mitsui Life Symposium on Global financial Markets, Conference on International Corporate Governance at the Tuck School of Business, 2nd Asian Corporate Governance Conference in Seoul, Estes Park Conference, 2002 Northern Finance Association Annual Meetings, the University of Michigan International Finance, Finance, and Law and Economics workshops, KAIST, University of Georgia, George Washington University, Hitotsubashi University, University of Miami, University of Notre Dame, Ohio State University, University of Toronto Finance and Law, and University of British Columbia Law workshops, where earlier versions of the paper were presented under different titles. We would also like to thank Nick Bradley, Ian Byrne, George Dallas, and Laurie Kizik for providing us with S&P Transparency Rankings and CLSA Corporate Governance Scores, Mara Faccio and Larry Lang for their generosity in sharing their ownership data, and Joyce Buchanan and Vlad Charniauski for excellent research assistance. This research was partly funded by Mitsui Life Financial Research Center at the University of Michigan Business School. Art Durnev also thanks the faculty of Rotman School of Management at the University of Toronto for their hospitality during Fall 2004.


Data on corporate governance and disclosure practices reveal wide within-country variation that decreases with the strength of investors' legal protection. A simple model identifies three firm attributes related to that variation: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data from 27 countries, we find that all three firm attributes are related to the quality of governance and disclosure practices, and firms with higher governance and transparency rankings are valued higher in stock markets. All relations are stronger in less investor-friendly countries, demonstrating that firms adapt to poor legal environments to establish efficient governance practices.