Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences

61 Pages Posted: 18 Jul 2007 Last revised: 31 Oct 2018

See all articles by Reena Aggarwal

Reena Aggarwal

Georgetown University - Robert Emmett McDonough School of Business

Isil Erel

Ohio State University (OSU) - Department of Finance

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Rohan Williamson

Georgetown University - McDonough School of Business

Multiple version iconThere are 4 versions of this paper

Date Written: December 1, 2007

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.

Keywords: governance, investor protection, common law.

JEL Classification: G32, G34, G38

Suggested Citation

Aggarwal, Reena and Erel, Isil and Stulz, Rene M. and Williamson, Rohan G., Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences (December 1, 2007). European Corporate Governance Institute (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. Available at SSRN: https://ssrn.com/abstract=1001454 or http://dx.doi.org/10.2139/ssrn.1001454

Reena Aggarwal

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-3784 (Phone)
202-687-0798 (Fax)

HOME PAGE: http://explore.georgetown.edu/people/aggarwal/

Isil Erel

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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