Examining the effects of large and small shareholder protection on Canadian corporate valuation

Abstract

First, we introduce a theoretical model of the positive effect of shareholder protection on the valuation of the firm. Then, we present a linear regression model to examine the effect of the shareholder protection and of the cash flow ownership by a controlling shareholder on firm valuation. In this research, we use a sample of 366 Canadian public firms listed on Toronto Stock Exchange market from 10 different industries. Consistent with the theoretical model, we find evidence of higher value of the firms with better shareholder protection in Canada. And the results generally confirm the prediction that higher cash flow owned by the controlling shareholder improves firm valuation.