Corporate Governance and Regulation: Can There be too Much of a Good Thing?

50 Pages Posted: 17 Jan 2007 Last revised: 9 Nov 2018

See all articles by Valentina Bruno

Valentina Bruno

American University - Department of Finance and Real Estate

Stijn Claessens

Bank for International Settlements (BIS)

Multiple version iconThere are 3 versions of this paper

Date Written: October 1, 2009

Abstract

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

Suggested Citation

Bruno, Valentina Giulia and Claessens, Stijn, Corporate Governance and Regulation: Can There be too Much of a Good Thing? (October 1, 2009). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 142/2007; Journal of Financial Intermediation, Forthcoming; AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=956329 or http://dx.doi.org/10.2139/ssrn.956329

Valentina Giulia Bruno

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States

HOME PAGE: http://www.american.edu/kogod/faculty/bruno.cfm

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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