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

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Author Info
Aggarwal, Reena (Georgetown U)
Erel, Isil (Ohio State U)
Stulz, Rene M. (Ohio State U)
Williamson, Rohan (Georgetown U)
Abstract

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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Paper provided by Ohio State University, Charles A. Dice Center for Research in Financial Economics in its series Working Paper Series with number 2007-14.

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Date of creation: Dec 2007
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Handle: RePEc:ecl:ohidic:2007-14

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G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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