Corporate Governance, Norms and Practices

54 Pages Posted: 11 Mar 2008

See all articles by Luc Laeven

Luc Laeven

European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

Vidhi Chhaochharia

University of Miami - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: February 20, 2008


We evaluate the impact of firm-level corporate governance provisions on the valuation of firms in a large cross-section of countries. Unlike previous work, we differentiate between minimally accepted governance attributes that are satisfied by all firms in a given country and governance attributes that are adopted at the firm level. Despite the costs associated with improving corporate governance at the firm level, we find that many firms choose to adopt governance provisions beyond those that are adopted by all firms in the country, and that these improvements in corporate governance are positively associated with firm valuation. Firms that choose not to adopt sound governance mechanisms tend to have concentrated ownership and free cash flow consistent with agency theories based on self interested managers and controlling shareholders. Our results indicate that the market rewards companies that are prepared to adopt governance attributes beyond those required by laws and common corporate practices in the home country.

JEL Classification: G34, G15, G12, G32, D82

Suggested Citation

Laeven, Luc A. and Chhaochharia, Vidhi, Corporate Governance, Norms and Practices (February 20, 2008). Available at SSRN: or

Luc A. Laeven

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Centre for Economic Policy Research (CEPR)

United Kingdom

Vidhi Chhaochharia (Contact Author)

University of Miami - Department of Finance ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

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