R-squared Around the World: New Theory and New Tests

Jin, Li and Myers, Stewart C. (2006) R-squared Around the World: New Theory and New Tests. Journal of Financial Economics, 79 (2). pp. 257-292.

Abstract

Morck, Yeung and Yu show that R2 is higher in countries with less developed financial systems and poorer corporate governance. We show how control rights and information affect the division of risk bearing between managers and investors. Lack of transparency increases R2 by shifting firm-specific risk to managers. Opaque stocks with high R2s are also more likely to crash, that is, to deliver large negative returns. Using stock returns from 40 stock markets from 1990 to 2001, we find strong positive relations between R2 and several measures of opaqueness. These measures also explain the frequency of crashes.

Item Type: Article
Keywords: Corporate control; International financial markets; Firm-specific risks; Information and market efficiency; Crashes; finance
Subject(s): Finance
Date Deposited: 20 Mar 2013 11:32
Last Modified: 27 Feb 2017 14:01
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/4498

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