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Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and ConsequencesReena AggarwalGeorgetown University - Robert Emmett McDonough School of Business Isil ErelOhio State University (OSU) - Department of Finance Rene M. StulzOhio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI) Rohan WilliamsonGeorgetown University - McDonough School of Business December 2007 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 Abstract: 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, G38 working papers seriesDate posted: July 18, 2007 ; Last revised: February 24, 2012Suggested CitationContact Information
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