Investor Protection and Corporate Control
Matías Tapia; Borja Larrain; Francisco Urzúa
Documento de Trabajo IE-PUC, N° 467, 2015.
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.