Contractual Corporate Governance

Abstract

Companies have the choice to deviate from their national corporate governance standards by opting into another system. They can do so via contractual devices - such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings - which enable firms to choose their preferred level of investor protection and regulation. This paper reviews these three main contractual governance devices, their effect on value, and whether their adoption by firms induces a race to the bottom or a race to the top. Indeed, firms may opt for less shareholder-orientation or investor protection shareholder-expropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).

Keywords: Contractual corporate governance, corporate governance regulation, cross-border mergers and acquisitions, cross-listings, reincorporations, shareholder protection, creditor protection, spillover effects

JEL Classification: G3, G34, G32, G38, K2