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Voluntary Adoption of Corporate Governance Mechanisms

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Author Info

  • Anita Anand

    (University of Toronto)

  • Frank Milne

    () (Queen's University)

  • Lynnette Purda

    (Queen's University)

Abstract

We model firms' incentives to voluntarily adopt corporate governance mechanisms and hypothesize that management's ability to extract private benefits, the need for external funds, and the ease with which a firm's assets may be monitored are important determinants of the level of governance. Using hand-collected data, we test these hypotheses and examine firms' propensity to adopt recommended but not required governance standards from their home and neighboring country's jurisdictions. We document that a significant level of voluntary adoption occurs and that this level has been both increasing over time and declining in variability across firms. Governance mechanisms are least likely to be voluntarily implemented when management controls a significant portion of common stock votes or a majority owner exists. In contrast, voluntary adoption increases when the firm faces significant investment opportunities and employs large levels of expenditures which are difficult to monitor such as research and development expenses.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1112.pdf
File Function: First version 2006
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1112.

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Length: 38 pages
Date of creation: Nov 2006
Date of revision:
Handle: RePEc:qed:wpaper:1112

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Keywords: Corporate Governance; Empirial Finance;

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References

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  1. Craig Doidge & G. Andrew Karolyi & Rene M. Stulz, 2001. "Why are Foreign Firms Listed in the U.S. Worth More?," NBER Working Papers 8538, National Bureau of Economic Research, Inc.
  2. John Y. Campbell, 1993. "Understanding Risk and Return," NBER Working Papers 4554, National Bureau of Economic Research, Inc.
  3. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
  4. 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.
  5. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  6. Erik Berglof & Ernst-Ludwig von Thadden, 1999. "The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries," William Davidson Institute Working Papers Series 263, William Davidson Institute at the University of Michigan.
  7. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2005. "The Rise and Fall of the Widely Held Firm: A History of Corporate Ownership in Canada," NBER Chapters, in: A History of Corporate Governance around the World: Family Business Groups to Professional Managers, pages 65-148 National Bureau of Economic Research, Inc.
  8. Tirole, Jean, 1999. "Corporate Governance," CEPR Discussion Papers 2086, C.E.P.R. Discussion Papers.
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Citations

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Cited by:
  1. Durnev, Art & Fauver, Larry, 2008. "Stealing from Thieves: Firm Governance and Performance when States are Predatory," CEI Working Paper Series 2008-12, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  2. Barbara, Petracci, 2011. "Trading when you cannot trade: Blackout periods in Italian firms," International Review of Law and Economics, Elsevier, vol. 31(3), pages 196-204, September.
  3. Morgan, Angela & Wolf, Jack, 2007. "Approval of shareholder-sponsored proposals: Evidence from Canada," International Review of Financial Analysis, Elsevier, vol. 16(2), pages 136-151.

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