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

Aggarwal, Reena; Erel, Isil; Stulz, René M.; Williamson, Rohan

doi:10.2139/ssrn.1001454

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

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

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 ; European Corporate Governance Institute (ECGI); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Isil Erel

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

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; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

There 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: 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