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

Reena Aggarwal; Isil Erel; René M. Stulz; Rohan Williamson

doi:10.1093/rfs/hhn107

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

Reena Aggarwal¹; Isil Erel²; René M. Stulz³; Rohan Williamson¹

¹ Georgetown University · ² The Ohio State University · ³ Ohio State University, NBER, and ECGI

Review of Financial Studies 2009

We construct a firm-level governance index that increases with minority shareholder protection. Compared with 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. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: [email protected]., Oxford University Press.

DOI: 10.1093/rfs/hhn107
Volume: 22 (8)
Pages: 3131-3169
Language: en
Export: BibTeX
Sources: crossref openalex