Government Ownership and Corporate Governance: Evidence from the EU

47 Pages Posted: 9 Jan 2010 Last revised: 18 Aug 2013

See all articles by Ginka Borisova

Ginka Borisova

Iowa State University - Department of Finance

Paul Brockman

Lehigh University - College of Business

Jesus M. Salas

Lehigh University

Andrey Zagorchev

Rhodes College - Department of Business

Date Written: January 11, 2012

Abstract

The ongoing global financial crisis has led to the largest increase in state intervention since the Great Depression. Direct government ownership in publicly-traded corporations has increased dramatically since 2008. How will this increase in public ownership affect the governance of these erstwhile private companies? We examine the impact of government ownership on corporate governance using a sample of firms from the European Union, a region that is relatively familiar with active government participation. Our main finding is that government ownership is associated with lower governance quality. We further show that while government intervention is negatively related to governance quality in civil law countries, it is positively related to governance quality in common law countries. Finally, we find that the preferential voting rights of golden shares are especially damaging to governance quality.

Keywords: Corporate governance, Government ownership, Legal origin, Golden shares

JEL Classification: G32, G34

Suggested Citation

Borisova, Ginka and Brockman, Paul and Salas, Jesus M. and Zagorchev, Andrey, Government Ownership and Corporate Governance: Evidence from the EU (January 11, 2012). Journal of Banking and Finance 36 (2012), pp. 2917-2934; Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1533854 or http://dx.doi.org/10.2139/ssrn.1533854

Ginka Borisova

Iowa State University - Department of Finance ( email )

College of Business
Ames, IA 50011-2063
United States

Paul Brockman (Contact Author)

Lehigh University - College of Business ( email )

Bethlehem, PA 18015
United States

Jesus M. Salas

Lehigh University ( email )

Bethlehem, PA 18015
United States
610-758-3238 (Phone)

HOME PAGE: http://www3.lehigh.edu/business/faculty/salas.asp

Andrey Zagorchev

Rhodes College - Department of Business ( email )

United States

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