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Does Corporate Governance Reform Necessarily Boost Firm Performance? Recent Evidence from Russia

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Author Info

  • Kuznecovs, Mihails

    ()
    (University of Surrey)

  • Pal, Sarmistha

    ()
    (University of Surrey)

Abstract

This paper examines whether the introduction of corporate governance (CG) reforms in general and that of transparency and disclosure (T&D) rules in particular can necessarily boost firm performance. Existing literature suggests that CG reforms can boost performance because it can resolve the conflict of interest between the controlling and the minority owners, especially in societies with highly skewed distribution of ownership. We however argue that the success of CG reform would, in addition, depend on whether the reforms may initiate further conflict, e.g., that between the state and the controlling owners. Using recent data from Russia for 2000-2008, we find that the introduction of corporate governance codes in Russia had limited success to improve indices of firm performance in our sample. We argue that this arises from the predatory behavior of the central and local governments: greater transparency make businesses easy targets for aggressive tax enforcement policy by the central government while the decentralized local governments may increase the bribe price to protect businesses from high central taxes, which may also induce some businesses to go underground, thus harming firm performance.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6519.

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Length: 36 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6519

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Keywords: corporate governance reform; transparency and disclosure rules; conflict between state and the controlling owner; taxation and fiscal decentralisation; firm performance; predatory state; Tobin's Q; Russia;

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References

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  1. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance And Equity Prices," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 107-155, February.
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  9. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
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  13. Sergei Guriev & Olga Lazareva & Andrei Rachinsky & Sergei Tsukhlo, 2004. "Corporate Governance in Russian Industry," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 47(3), pages 6-83, July.
  14. John, Kose & Senbet, Lemma W., 1998. "Corporate governance and board effectiveness1," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 371-403, May.
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  16. Andrei Shleifer & Robert W. Vishny, 1995. "A Survey of Corporate Governance," Harvard Institute of Economic Research Working Papers 1741, Harvard - Institute of Economic Research.
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Cited by:
  1. Sergey Solntsev, 2013. "Senior management labor market: from economic growth to crisis. The case of Russia," HSE Working papers WP BRP 10/MAN/2013, National Research University Higher School of Economics.

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