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Globalization and Similarities in Corporate Governance: A Cross-Country Analysis

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  • Khanna, Tarun
  • Kogan, Joe
  • Palepu, Krishna
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    Abstract

    Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries - especially if the countries are both economically developed - appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/13927/1/wp2002-6a.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2002-6.

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    Length: 49 p.
    Date of creation: Sep 2002
    Date of revision:
    Handle: RePEc:hit:hitcei:2002-6

    Note: First Draft: July 1, 2001; This Draft: August 9, 2002
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    Cited by:
    1. Mitton, Todd, 2004. "Corporate governance and dividend policy in emerging markets," Emerging Markets Review, Elsevier, vol. 5(4), pages 409-426, December.
    2. John Nowland, 2008. "Are East Asian Companies Benefiting from Western Board Practices?," Journal of Business Ethics, Springer, vol. 79(1), pages 133-150, April.
    3. Pursey P.P.M.A.R. Heugens & Jordan Otten, 2005. "Corporate Governance Reforms around the World," Working Papers 05-08, Utrecht School of Economics.
    4. Uma Kambhampati, 2006. "Financial liberalisation, corporate governance and the efficiency if firms in Indian manufacturing," Economics & Management Discussion Papers em-dp2006-33, Henley Business School, Reading University.
    5. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why Do Countries Matter So Much for Corporate Governance?," Working Paper Series 2004-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    6. Siegel, Jordan, 2005. "Can foreign firms bond themselves effectively by renting U.S. securities laws?," Journal of Financial Economics, Elsevier, vol. 75(2), pages 319-359, February.
    7. Timothy Fogarty & Michel Magnan & Garen Markarian & Serge Bohdjalian, 2009. "Inside Agency: The Rise and Fall of Nortel," Journal of Business Ethics, Springer, vol. 84(2), pages 165-187, January.

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