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The Impact of Corporate Governance on Investment Returns in Developed and Developing Countries

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  • Klaus Gugler
  • Dennis C. Mueller
  • B. Burcin Yurtoglu

Abstract

We shed light on three conundrums in the literature on investment: why investments out of different sources of finance earn different returns, why different studies report different patterns of returns across sources of finance, and why companies in developing countries make greater use of external equity capital to finance their investment than do companies in developed countries. We show that the strength of corporate governance systems affects the preferred source of financing, which in turn helps to explain why investments financed in different ways exhibit significantly different rates of return. We find considerable differences between developed and developing countries in the effectiveness of corporate governance systems in aligning managers and shareholders' interests. Copyright 2003 Royal Economic Society.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 113 (2003)
Issue (Month): 491 (November)
Pages: F511-F539

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Handle: RePEc:ecj:econjl:v:113:y:2003:i:491:p:f511-f539

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Citations

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Cited by:
  1. Carol C. Bertaut & Linda S. Kole, 2004. "What makes investors over or underweight? explaining international appetites for foreign equities," International Finance Discussion Papers 819, Board of Governors of the Federal Reserve System (U.S.).
  2. Ajit Singh & Ann Zammit, 2006. "Corporate Governance, Crony Capitalism and Economic Crises: should the US business model replace the Asian way of "doing business"?," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(4), pages 220-233, 07.
  3. Singh, Ajit & Sheng, Andrew, 2011. "Islamic finance revisited: conceptual and analytical issues from the perspective of conventional economics," MPRA Paper 39007, University Library of Munich, Germany, revised 10 Apr 2012.
  4. Hentati Fakher & Bouri Abdelfettah, 2012. "Board of directors and financial decisions of Tunisian firms," African Journal of Accounting, Auditing and Finance, Inderscience Enterprises Ltd, vol. 1(1), pages 101-112.
  5. Mario, Cuevas, 2007. "A Practical Guide to the Assessment of the Vulnerability of the Non-Financial Private Sector," MPRA Paper 1375, University Library of Munich, Germany.
  6. Jack Glen & Ajit Singh, 2005. "Corporate Governance, Competition, and Finance: Re-thinking Lessons from the Asian Crisis," Eastern Economic Journal, Eastern Economic Association, vol. 31(2), pages 219-243, Spring.
  7. Ajit Singh, 2002. "Competition, corporate governance and selection in emerging markets," ESRC Centre for Business Research - Working Papers wp247, ESRC Centre for Business Research.
  8. Carol C. Bertaut, 2008. "Assessing the potential for further foreign demand for U.S. assets: Has financing U.S. current account deficits made foreign investors overweight in U.S. securities?," International Finance Discussion Papers 950, Board of Governors of the Federal Reserve System (U.S.).
  9. Hua-Wei Huang, 2009. "Sarbanes-Oxley section 404 compliance: Recent changes in US-traded foreign firms' internal control reporting," Managerial Auditing Journal, Emerald Group Publishing, vol. 24(6), pages 584-598, July.
  10. Dennis Mueller, 2005. "Constitutional political economy in the European Union," Public Choice, Springer, vol. 124(1), pages 57-73, July.
  11. Burcin Yurtoglu, 2003. "Corporate Governance and Implications for Minority Shareholders in Turkey," Working Papers 2003/7, Turkish Economic Association.
  12. Gugler, Klaus & Mueller, Dennis C. & Peev, Evgeni & Segalla, Esther, 2013. "Institutional determinants of domestic and foreign subsidiaries’ performance," International Review of Law and Economics, Elsevier, vol. 34(C), pages 88-96.
  13. Dennis C. Mueller & B. Burcin Yurtoglu, 2007. "Corporate governance and the returns to acquiring firms' shareholders: an international comparison," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(8), pages 879-896.
  14. Mykhayliv, Dariya & Zauner, Klaus G., 2013. "Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 265-278.
  15. Gugler, Klaus & Mueller, Dennis C. & Yurtoglu, B. Burcin, 2008. "Insider ownership, ownership concentration and investment performance: An international comparison," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 688-705, December.
  16. Singh, Ajit, 2003. "Corporate governance, corporate finance and stock markets in emerging countries," MPRA Paper 24302, University Library of Munich, Germany.
  17. Bjuggren, Per-Olof & Högberg, Andreas, 2012. "Legal Origin and Firm Size Effects Around the World," Ratio Working Papers 191, The Ratio Institute.

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