Corporate Governance and Regulation: Can There be too Much of a Good Thing?
50 Pages Posted: 17 Jan 2007 Last revised: 9 Nov 2018
Date Written: October 1, 2009
We investigate how company-level corporate governance practices and country-level legal investor protection jointly affect company performance. We find that in any legal regime a few specific governance practices improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices. Our analysis suggests a threshold level of country development above which stringent regulation hurts the performance of well governed companies or has a neutral effect for poorly governed companies.
Keywords: Corporate governance, Country regulation, Company valuation, Cost of capital
JEL Classification: G34, G38, K22
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