NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Reena Aggarwal, Isil Erel, René Stulz, Rohan Williamson

NBER Working Paper No. 13288
Issued in August 2007
NBER Program(s):   CF

Using an index which increases as a firm adopts more governance attributes, we find that 12.7% of foreign firms have a higher index than matching U.S. firms. The best predictor for whether a foreign firm adopts more governance attributes than a comparable U.S. firm is whether the firm comes from a common law country. We show that the value of foreign firms is negatively related to the difference between their governance index and the index of matching U.S. firms. This relation is robust to various approaches to control for the endogeneity of corporate governance and is consistent with the hypothesis that foreign firms are valued less because country characteristics make it suboptimal for them to invest as much in governance as comparable U.S. firms. Overall, our evidence suggests that firm-level governance attributes are complementary to rather than substitutes for country-level investor protection, so that better country-level investor protection makes it optimal for firms to invest more in internal governance. Our evidence supports the view that minority shareholders of a typical foreign firm would benefit from an increase in investment in governance, but that the firm's controlling shareholder and possibly other stakeholders would not.

download in pdf format
   (232 K)

email paper

This paper is available as PDF (232 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13288

Published:

Users who downloaded this paper also downloaded these:
Aggarwal, Erel, Stulz, and Williamson w12819 Do U.S. Firms Have the Best Corporate Governance? A Cross-Country Examination of the Relation between Corporate Governance and Shareholder Wealth
Bebchuk and Weisbach w15537 The State of Corporate Governance Research
Gompers, Ishii, and Metrick w8449 Corporate Governance and Equity Prices
Caprio, Laeven, and Levine w10158 Governance and Bank Valuation
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us