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Financial Crisis, Industrial Heterogeneity and the Effectiveness of Corporate Governance
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TitleFinancial Crisis, Industrial Heterogeneity and the Effectiveness of Corporate Governance  
AuthorZhang Yanlei and Rong Zhao  
OrganizationResearch Institute of Economics and Management, Southwestern University of Finance and Economics 
Key WordsFinancial Crisis; Industrial Heterogeneity; Corporate Governance; Market Performance 
Abstract With the natural experiment provided by the financial crisis, this paper studies how corporate governance of China’s listed firms influence their market performance. Due to the financial crisis, the return on investment dropped significantly, which should have increased the incentive of insiders to appropriate firm resources. This paper first discusses how the external shock influences the extent of the appropriation, thus firms’ market performance. We then test the main hypotheses based on the heterogeneity of shocks across industries during the financial crisis. Our results indicate that the largest shareholder expropriates while other large shareholders act against it. Moreover, the above patterns become stronger when the external shock is more severe. We also find that the effects of top management’s compensation and their shareholding are complicate. This paper not only provides new evidence on the importance of corporate governance, but also sheds light on how firms should do in order to improve their governance. 
Serial NumberWP323 
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