Corporate Governance and the Determinants of Investment
41 Pages Posted: 10 Oct 2007
Date Written: May 2007
We use investment-cash flow regressions to show that both asymmetric-information and agency problems are more severe in Continental Europe than in the Anglo-Saxon countries leading to too little investment by firms with attractive investment opportunities and too much by those with poor investment opportunities. Legal systems, accounting standards, and ownership structure systematically affect the investment-cash flow sensitivity. Cash flow coefficients are largest for family-controlled firms in Europe.
Keywords: Investment, corporate governance, ownership structure, international comparison
JEL Classification: G31, G32, O16
Suggested Citation: Suggested Citation