# **Appendix A: Brief description of our variables and their sources**

## **A.1. Creditor/Shareholder Rights Variables, (Tables 2-A, 2-B, 2-C, 2-D, and 2-E)**

|**Variables**|**Description**|**Sources**|
|---|---|---|
|Legal origin|<br>Identifies the legal origin of the company law or commercial code of<br>each country.|Reynolds & Flores (1989);<br>LLSV(1997a, 1998)|
|One share-one vote|1) Equals one if ordinary shares carry one vote per share, and zero<br>otherwise; 2) equals one, when the law prohibits the existence of both<br>multiple-voting and nonvoting ordinary shares and does not allow firms<br>to set a maximum number of votes per shareholder irrespective of the<br>number of shares owned, and zero otherwise.|Company law or<br>commercial code;<br>LLSV(1997a, 1998)|
|Proxy by mail<br>allowed|<br>Equals one if shareholders can mail their proxy vote to the firm, and<br>zero otherwise.|Company law or<br>commercial code;<br>LLSV (1998)|
|Shares not blocked<br>before meeting|Equals ones if firms cannot require shareholders to deposit their shares<br>prior to a general shareholders’ meeting (to prevent selling shares), and<br>zero otherwise.|<br>Company law or<br>commercial code;<br>LLSV (1998)|
|Cumulative voting<br>or proportional<br>representation|Equals one if shareholders can cast all their votes for one candidate to<br>the board of directors (cumulative voting) or a mechanism of<br>proportional representation in the board by which minority interests may<br>name a proportional number of directors to the board is allowed, and<br>zero otherwise.|Company law or<br>commercial code;<br>LLSV (1998)|
|Oppressed<br>minorities<br>mechanism|<br>Equals one if minority shareholders have either a judicial venue to<br>challenge the decisions of management or the assembly or the right to<br>step out of the company by requiring the company to purchase their<br>shares when they object to certain fundamental changes (e.g., mergers<br>and asset dispositions); equals zero otherwise. Minority shareholders are<br>defined as those shareholders who own 10% of shares or less.|Company law or<br>commercial code;<br>LLSV (1998)|
|Preemptive rights|<br>Equals one when grants shareholders the first opportunity to buy new<br>issues of stock, and this right can be waived only by a shareholders'<br>vote; equals zero otherwise.|Company law or<br>commercial code;<br>LLSV (1998)|
|Percentage of share<br>capital to call an<br>extraordinary<br>shareholders'<br>|<br>The minimum percentage of ownership of share capital that entitles a<br>shareholder to call for an extraordinary shareholders' meeting; ranges<br>from 1% to 33%.|<br>Company law or<br>commercial code;<br>LLSV (1998)|
|meeting|||
|<br>Antidirector rights|The index is formed by adding one when: (1) the country allows<br>shareholders to mail their proxy vote to the firm; (2) shareholders are<br>not required to deposit their shares prior to the general shareholders'<br>meeting; (3) cumulative voting or proportional representation of<br>minorities in the board of directors is allowed; (4) an oppressed<br>minorities mechanism is in place; (5) the minimum percentage of share<br>capital that entitles a share- holder to call for an extraordinary<br>shareholders' meeting is less than or equal to 10% (the sample median);<br>or, (6) shareholders have preemptive rights that can be waived only by a<br>shareholders' vote. The index ranges from zero to six.|Company law or<br>commercial code;<br>LLSV (1998)|
|Mandatory dividend|<br>Equals the percentage of net income that the company law or<br>commercial code requires firms to distribute as dividends among<br>ordinary stockholders. It equals zero for countries without such a<br>restriction|Company law or<br>commercial code;<br>LLSV (1998)|
|Restrictions for<br>going into<br>reorganization|.<br>Equals one if the reorganization procedure imposes restrictions, such as<br>creditors consent; equals zero otherwise.|Bankruptcy and<br>reorganization laws;<br>LLSV (1998)|
|<br>No automatic stay<br>on secured assets|Equals one if the reorganization procedure does not impose an<br>automatic stay on the assets of the firm on filing the reorganization|<br>Bankruptcy and<br>reorganization laws;<br>LLSV(1998)|

41