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

Reena Aggarwal^{1,2,3,4,5,6,7,8,9,10,11,12}; Isil Erel^{1,2,3,4,5,6,7,8,9,10,11,12}; René M. Stulz^{1,2,3,4,5,6,7,8,9,10,11,12}; Rohan Williamson^{1,2,3,4,5,6,7,8,9,10,11,12}

¹ University of Southern California · ² University of Iowa · ³ Northeastern University · ⁴ National Bureau of Economic Research · ⁵ World Bank · ⁶ Georgetown University · ⁷ University of South Florida · ⁸ Fisher College · ⁹ California Southern University · ¹⁰ University of Virginia · ¹¹ The Ohio State University · ¹² Case Western Reserve University

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.

DOI

10.1093/rfs/hhn107.ra

Volume

23 (3)

Pages

3131-3169

Language

en

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