- A similar approach is used by Lins (2003) to address endogeneity problems arising in the relation between ownership and valuation. Data availability for ALPHA and BETA from Worldscope yield 302 and 296 firms for CLSA and S&P samples, respectively. The overall results are similar to those reported earlier. However, in Table II coefficients on INV_OPP*LEGAL and EXT_FIN*LEGAL with PROTECT as the dependent variable are negative but not significant at the conventional level (p-val = 0.22 and 0.30, respectively). In Table IV, the coefficient on CORP_GOV*LEGAL becomes insignificant (p-val = 0.17) when COMP is used as a proxy for firm governance.
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- The recent international studies include Black (2001) and Black, Jang, and Kim (2002), who demonstrate a strong relation between corporate governance and firm valuation in Russia and Korea; Doidge, Karolyi, and Stulz (2003), who show that foreign firms listed on U.S. stock markets are valued higher; and Klapper and Love (2003), who use CLSA data to document a positive relation between firm valuation and corporate governance similar to ours. A partial list of the U.S. data based studies includes Bhagat and Brickley (1984), Demsetz and Lehn (1985), Bhagat and Jefferis (1991), Demsetz and Villalonga (2001), and Gompers, Ishi, and Metrick (2003). See Denis and McConnell (2003) for a more complete list and recent review of the literature. Although the above derivations assume non-negative e, it is easy to show that all the results hold with negative e. Shleifer and Wolfenzon (2002) obtain a similar result under a more restrictive set of assumptions.
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- We estimate the selection equation using all companies covered in Worldscope for our sample countries that have sales data, the proxy for size, in either 1999 or 2000. There are 5,466 and 8,260 such companies for countries covered by CLSA and S&P, respectively. The coefficient on SIZE in the selection equation is positive and significant in all specifications, indicating that larger firms are more likely to be included in CLSA and S&P samples.
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Wurgler, Jeffry, 2000, Financial markets and the allocation of capital, Journal of Financial Economics 58, 187-214. FOOTNOTES Rajan and Zingales (2003) also document substantial reversals in financial developments, which cannot be attributed directly to differences in legal origin. They argue rent-seeking incumbents oppose financial development, and explain the time-series variation by describing how the legal system affects interest group politics in hindering/promoting development of financial markets.