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

Posted: 5 Aug 2009

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: August 2009

Abstract

We construct a firm-level governance index that increases with minority shareholder protection. Compared with 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: 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 (August 2009). The Review of Financial Studies, Vol. 22, Issue 8, pp. 3131-3169, 2009. Available at SSRN: https://ssrn.com/abstract=1443061 or http://dx.doi.org/hhn107

Reena Aggarwal (Contact Author)

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

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Washington, DC 20057
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HOME PAGE: http://explore.georgetown.edu/people/aggarwal/

Isil Erel

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

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Rene M. Stulz

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

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Columbus, OH 43210-1144
United States

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

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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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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