Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences
Georgetown University - Robert Emmett McDonough School of Business
Ohio State University (OSU) - Department of Finance
Rene M. Stulz
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
Georgetown University - McDonough School of Business
ECGI - Finance Working Paper No. 184/2007
Fisher College of Business Working Paper No. 2007-03-015
Charles A. Dice Center Working Paper No. 2007-14
We construct a firm-level governance index that increases with minority shareholder protection. Compared to U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms. Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.
Number of Pages in PDF File: 55
Keywords: governance, investor protection, common law.
JEL Classification: G32, G34, G38working papers series
Date posted: July 18, 2007 ; Last revised: February 24, 2012
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