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    Bank of Finland, Rauhankatu 19 B, Helsinki

Carsten Sprenger (New Economic School) - Corporate Governance and Investment: Evidence from Russian Unlisted Firms

Co-author: Olga Lazareva (Higher School of Economics, Moscow)

This paper investigates how corporate governance of unlisted firms in an emerging market economy affects financing constraints, measured by the sensitivity of investment to cash flow. We develop two original corporate governance indices based on a large-scale survey of Russian enterprises – one for shareholder protection and one for transparency. We estimate standard investment regressions where the cash flow variable is interacted with our corporate governance indices and variables capturing the ownership structure. The central result is that better shareholder protection diminishes the cash flow sensitivity of investment, particularly in firms with an outside controlling owner and in firms with low managerial ownership. In contrast, more transparency exacerbates financing constraints in some cases. We address the problem of the endogeneity of corporate governance by using fixed-effects regressions and a novel instrumental variable based on particular legal provisions for corporate governance in Russia depending on the number of shareholders.


BOFIT seminars are held on Tuesdays at 10.30–11.30 in Rauhankatu, 3rd floor big meeting room (unless indicated otherwise). Seminars are held in English.

BOFIT seminars are open to all economists interested in the subject areas covered. Please register in advance at bofit@bof.fi or by phone +358 9 183 2268 by noon of the preceding day. Visitors will be escorted from Rauhankatu 19 B (Kirjasto/Library) entrance to the seminar room 10 minutes before the seminar.