Universal Corporate Governance

59 Pages Posted: 17 Dec 2018 Last revised: 13 Feb 2019

See all articles by Mikael Homanen

Mikael Homanen

City University London - The Business School; PRI Association

Hao Liang

Singapore Management University - Lee Kong Chian School of Business; European Corporate Governance Institute (ECGI)

Date Written: December 16, 2018


A widely accepted principle in finance is that good corporate governance is associated with higher firm value. However, what is “good governance” and whether the same set of good governance practices can be universally adopted are fiercely debated. In this paper, we construct various measures of firm- and country-level corporate governance, including a “global entrenchment index”. We then test their relation with firm value on a large sample of more than 20,000 firms across 47 countries. We find substantial heterogeneity in the relation between some governance practices—especially those related to corporate rules constraining insider entrenchment—and firm value across countries, which is contingent on firms’ ownership structure and institutional environments. In contrast, higher institutional ownership is unconditionally correlated with higher firm valuation. Our results cast doubt on the universality of rule-based corporate governance practices.

Keywords: corporate governance, entrenchment index, institutional ownership, institutional environment, contingency

JEL Classification: G30, G34, G23

Suggested Citation

Homanen, Mikael and Liang, Hao, Universal Corporate Governance (December 16, 2018). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 585/2018, Available at SSRN: https://ssrn.com/abstract=3302216 or http://dx.doi.org/10.2139/ssrn.3302216

Mikael Homanen

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

PRI Association ( email )

25 Camperdown Street
London, E18DZ

Hao Liang (Contact Author)

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409

HOME PAGE: http://business.smu.edu.sg/faculty/profile/130396/LIANG-Hao

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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