Why do countries matter so much for corporate governance?
By: Rene M. Stulz, G. Andrew Karolyi, Craig Doidge.
Contributors: Karolyi, G. Andrew; Doidge, Craig.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 10726; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 10726.
Publisher: National Bureau of Economic Research
Published: 2004
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Corporate governance.; Industrial policy.
Description: "This paper develops and tests a model of how country characteristics, such as legal protections for minority investors, and the level of economic and financial development, influence firms' costs and benefits in implementing measures to improve their own governance and transparency.  The model focuses on an entrepreneur who needs to raise funds to finance the firm's investment opportunities and who decides whether or not to invest in better firm-level governance mechanisms to reduce agency costs.  We show that, for a given level of country investor protection, the incentives to adopt better governance mechanisms at the firm level increase with a country's financial and economic development.  When economic and financial development is poor, the incentives to improve firm-level governance are low because outside finance is expensive and the adoption of better governance mechanisms is expensive.  Using firm-level data on international corporate governance and transparency ratings for a large sample of firms from around the world, we find evidence consistent with this prediction.  Specifically, we show that (1) almost all of the variation in governance ratings across firms in less developed countries is attributable to country characteristics rather than firm characteristics typically used to explain governance choices, (2) firm characteristics explain more of the variation in governance ratings in more developed countries, and (3) access to global capital markets sharpens firm incentives for better governance, but decreases the importance of home-country legal protections of minority investors"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
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