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The Value of Investors in the Development of Business

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In periods of financial crises – like current one – firms tend to be particularly careful as of the protection of their investors; strategic measures are likely to be implemented for ensuring the protection of the investors’ interests during a recession. However, the effectiveness of these measures is not guaranteed. Through the research of Rondi et al. (2009) it has been proved that ‘ the stronger the investor protection the lower the fraction of equity that is owned by insiders’ (Rondi et al. , 2009, 634); it has been also proved that ‘ higher insider equity ownership is linked to larger risk premiums and higher costs of capital’ (Rondi et al. , 2009, 634).

However, the criteria used for deciding the measures taken for the protection of investors in modern firms cannot be standardized; especially in firms that business goals tend to be differentiated in accordance with the market trends and the firms’ performance the role of investors in the development of business activities can be interpreted using different parameters. The level at which the investors can affect the business performance is also likely to be depended on the market’ s characteristics; towards this direction, it has been proved in the study of Chhabra et al.

(2009) that ‘ well-developed capital markets produce higher rates of economic growth and allocate capital more efficiently’ (Chhabra et al. , 2009, 819). Moreover, a relationship seems to exist among the investors, the cost of capital and the level of a firm’ s liquidity. When the specific issue was set under examination it was revealed that ‘ lower levels of investor protection reduce share liquidity while simultaneously resulting in a higher cost of equity capital’ (Chhabra et al. , 2009, 819).

In accordance with the above, the measures taken towards the protection of investors within a specific organization should be based on the following criteria: a) the shared liquidity of the firm would not be adversely affected – at least the limitation of the firm’ s share liquidity should be kept at low levels, b) the cost of capital should not be increased.

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