Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences

Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences

Reena Aggarwal, Isil Erel, René Stulz, Rohan Williamson

Series number :

Serial Number: 
184/2007

Date posted :

July 01 2007

Last revised :

October 30 2018
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Keywords

  • governance • 
  • investor protection • 
  • common law

We construct a firm-level governance index that increases with minority shareholder protection. Compared to U.S. matching firms, only 12.68% of foreign firms have a higher index. The value of foreign firms falls as their index decreases relative to the index of matching U.S. firms.

Our results suggest that lower country-level investor protection and other country characteristics make it suboptimal for foreign firms to invest as much in governance as U.S. firms do. Overall, we find that minority shareholders benefit from governance improvements and do so partly at the expense of controlling shareholders.

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Published in

Published in: 
Description: 
Fisher College of Business Working Paper No. 2007-03-015 | Charles A. Dice Center Working Paper No. 2007-14

Authors

Real name:
Rohan Williamson