Voluntary Adoption of Corporate Governance Mechanisms

46 Pages Posted: 10 Aug 2006

See all articles by Anita Anand

Anita Anand

University of Toronto - Faculty of Law

Frank Milne

Queen's University - Department of Economics

Lynnette D. Purda

Queen's University - Smith School of Business

Date Written: April 29, 2006

Abstract

This paper empirically examines the extent to which firms adopt recommended but not required corporate governance guidelines. We examine the governance practices of approximately 200 Canadian firms on the TSX/S&P Index in each of five years. With this novel hand-collected data set, we establish that firms voluntarily implement suggested domestic best practices as well as the U.S. mandatory governance practices. In addition, we demonstrate that this voluntary behaviour has been increasing over time. We find that the presence of a majority shareholder or executive block holder is negatively associated with voluntary adoption. By contrast, the presence of either significant investment opportunities or a high level of research and development expenditures encourages the firm to improve the value of the index reflecting board quality. Our intuition is that these factors are indicative of a firm's need or desire to access capital markets in the future. As a result, we reason that firms implement governance mechanisms primarily to appeal to prospective investors.

Keywords: corporate governance, voluntary, mandatory, Sarbanes-Oxley

JEL Classification: K22, K00

Suggested Citation

Anand, Anita and Milne, Frank and Purda, Lynnette D., Voluntary Adoption of Corporate Governance Mechanisms (April 29, 2006). Available at SSRN: https://ssrn.com/abstract=921450 or http://dx.doi.org/10.2139/ssrn.921450

Anita Anand (Contact Author)

University of Toronto - Faculty of Law ( email )

78 Queen's Park
Toronto, Ontario M5S 2C5
Canada
4169464002 (Phone)

Frank Milne

Queen's University - Department of Economics ( email )

Lynnette D. Purda

Queen's University - Smith School of Business ( email )

Smith School of Business - Queen's University
143 Union Street
Kingston, Ontario K7L 3N6
Canada
613-533-6980 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
545
Abstract Views
2,346
rank
50,856
PlumX Metrics