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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)

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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://www.econ.queensu.ca/working_papers/papers/qed_wp_1112.pdf
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File Function: First version 2006
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Publisher 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
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Handle: RePEc:qed:wpaper:1112

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Related research
Keywords: Corporate Governance Empirial Finance

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Find related papers by JEL classification:
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Randall Morck & Michael Percy & Gloria Tian & Bernard Yeung, 2004. "The Rise and Fall of the Widely Held Firm - A History of Corporate Ownership in Canada," NBER Working Papers 10635, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Alexander Dyck & Luigi Zingales, 2004. "Private Benefits of Control: An International Comparison," Journal of Finance, American Finance Association, vol. 59(2), pages 537-600, 04. [Downloadable!] (restricted)
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  3. Tirole, Jean, 2001. "Corporate Governance," Econometrica, Econometric Society, vol. 69(1), pages 1-35, January.
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  4. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December. [Downloadable!] (restricted)
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  5. Campbell, John Y, 1996. "Understanding Risk and Return," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 298-345, April. [Downloadable!] (restricted)
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  6. Erik BERGLÖF & Ernst-Ludwig VON THADDEN, 1999. "The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9912, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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  7. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Art Durnev & Larry Fauver, 2007. "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. [Downloadable!]
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