This paper uses the enactment of China’s 2007 Property Law (the Law), which reduces the risk of expropriation by local governments, as the setting to investigate the importance of property rights protection for private firm investment. Using propensity score matching and a difference-in-differences design, we find that firms facing weaker property rights protection prior to the Law significantly increase their investment and investment efficiency after the Law. Cross-sectional analyses document evidence consistent with a decrease in firms’ perceived expropriation risk as the main mechanism underlying the Law’s effect. Finally, we show that the Law improves local economic outcomes and employment.

We examine whether family firms differ from nonfamily firms in their corporate social responsibility (CSR) reporting practice. Using a sample of Chinese firms, we find that, compared to nonfamily firms, family firms are more likely to have a system in place that guides the establishment and development of their CSR activities. Family firms are also more likely to adopt the GRI guidelines, and they disclose significantly more information about their CSR practice. The findings are consistent with the notion that family firms are more long-term oriented, and as a result, they are more concerned about firm reputation and use CSR disclosure as a means to establish and maintain a good reputation and to legitimize their behavior. We further find that the positive relation between family firms and CSR disclosure exists mainly in those firms with relative high state ownership, which helps mitigate government expropriation risk. Our research contributes to the limited literature on the relation between family firms and CSR practice. We also contribute to the literature on the impact of government expropriation risk and its interaction with firm ownership structure on firm behavior.

We examine the effects of controlling shareholder stock pledge on corporate acquisition decisions and associated performance. Consistent with our aggravated expropriation hypothesis, we find that pledging firms in China initiate more takeovers, but these acquisitions conducted by pledging firms experience lower announcement returns. We adopt the difference in differences and the instrumental variable approaches to establish causality. Channel tests further reveal that pledging acquirers overpay for the deals and are more likely to be involved in related party transactions. Cross-sectionally, we find that the relations between the share pledge and corporate acquisitiveness and returns are more pronounced for non-SOEs and firms with high-level excess cash. Lastly, we document that pledging acquirers underperform in the long-run in terms of lower ROAs and a greater likelihood of goodwill impairment. Overall, our findings indicate that controlling shareholders increasingly expropriate minority shareholders through self-serving corporate takeovers after the stock pledge.

We examine the effects of controlling shareholder stock pledge on corporate acquisition decisions and associated performance. Consistent with our aggravated expropriation hypothesis, we find that pledging firms in China initiate more takeovers, but these acquisitions conducted by pledging firms experience lower announcement returns. We adopt the difference in differences and the instrumental variable approaches to establish causality. Channel tests further reveal that pledging acquirers overpay for the deals and are more likely to be involved in related party transactions. Cross-sectionally, we find that the relations between the share pledge and corporate acquisitiveness and returns are more pronounced for non-SOEs and firms with high-level excess cash. Lastly, we document that pledging acquirers underperform in the long-run in terms of lower ROAs and a greater likelihood of goodwill impairment. Overall, our findings indicate that controlling shareholders increasingly expropriate minority shareholders through self-serving corporate takeovers after the stock pledge.

We examine whether investor behavior can be influenced by the social norms to which they are exposed. Specifically, we test two competing hypotheses regarding the influence of social trust on the disposition effect related to mutual fund investment. On the one hand, a higher level of social trust may elicit stronger investor reactions by increasing the credibility of the performance numbers reported by funds. This results in higher flow-performance sensitivity, which mitigates investors’ tendency to sell winners and hold onto losers. On the other hand, societal trust may reduce concerns about expropriation, thereby weakening investors’ need to react to poor performance. The resulting lower flow-performance sensitivity increases the disposition effect. Based on a proprietary dataset of complete account-level trading information for all investors in a large mutual fund family in China, we find compelling evidence 1) of a significant disposition effect among fund investors; 2) that a higher degree of social trust is associated with higher flow-performance sensitivity; and 3) that (high) trust-induced flows mitigate the disposition effect. Our results suggest that, in addition to cognitive biases, investor behavior is also strongly influenced by social norms.

The deviation of control right and cash flow right is a common problem of corporate governance in East Asian companies.With Taiwan's listed companies as samples, this paper discusses whether the degree of deviation of control right and cash flow right will affect the company’s earnings distribution policy. The results reveal that, regardless of using stock right or the number of directors to measure the control right, companies of higher degree of deviation of control right and cash flow right have higher proportions of employee bonuses against the shareholder dividends, In this case, the company is more biased in the care of the employees at the expense of the minority shareholders. The company is especially likely to exploit the minority shareholders by controlling the board of directors and paying cash dividends to employees. As investors believe that the controlling shareholders of companies with high degree deviation of control right and cash flow right, and high proportion of employee bonuses are intended to exploit the minority shareholders, such companies have significantly lower declared earnings distribution remuneration compared with companies with low degree of deviation and low employee bonuses.

We investigate how a firm’s political connections may affect its corporate policies. We propose and test the hypothesis that firms’ political connections enhance investors’ endorsement of managerial decisions, which elevates firm investment and encourages equity issuance and less cash payout. Using a sample of non-state owned Chinese firms, we find strong evidence in support of this hypothesis. Specifically, politically connected firms are less likely to pay dividends and pay less if they pay. The dividend announcement returns are significantly lower in connected firms than in otherwise similar but unconnected firms. Investors prefer firm investments to cash payouts by politically connected firms with high growth opportunities, and tend to value these firms’ investment decisions significantly higher. Finally, connected firms are also more able to tap public equity market for external funds. Our evidence is more consistent with political connections being an investor endorsement device rather than the expropriation device as suggested in the prior literature.

The conflict of interest between controlling and minority shareholders is an important issue in firms with concentrated ownership. We document that expropriation behavior by controlling shareholders through tunneling or self-dealing is far more severe in politically connected firms than in nonpolitically connected firms. This severity results more from the formers’ lower concern with capital market punishment than from the possibility that such firms tend to establish political connections for protection. Consistent with the view that a firm’s financing condition influences its corporate governance, we show that such severe expropriation occurs only in firms whose political connection helps them secure bank loan access.

We examine the impact of corporate ownership structure on the value of excess cash in Chinese listed firms. We find that the value of excess cash is less in firms controlled by private investors than in those firms controlled by the government. One dollar of excess cash is valued a $0.36 in firms controlled by private investors while it rises to $0.42 in firms controlled by the government. Furthermore, we show that the expropriation of the controlling shareholders is significantly and positively related with the previous year’s excess cash in firms controlled by private investors while it is insignificant in firms controlled by the government. These findings are consistent with the view that private controlling shareholders have the greater ability to extract private benefit in cash holdings.

In this paper we argue that ine? cient bank loans can reduce the value of borrowing ?rms when the expropriation of minority share- holders by controlling shareholders is a major concern. Using data from Chinese ?nancial market, we ?nd that bank loan announcements generate signi?cantly negative abnormal returns to borrowing ?rms. The share devaluation following loan announcements are concentrated in ?rms that are perceived to be more vulnerable to controlling share- holders?expropriation. In addition, we ?nd weak evidence that bank quality mitigates the negative market reactions.