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Corporate governance and regulation: Can there be too much of a good thing?

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  • Bruno, Valentina
  • Claessens, Stijn

Abstract

We investigate how company-level corporate governance practices and country-level legal investor protection jointly affect company performance. We find that in any legal regime there are a few specific governance practices that improve performance. Companies with good governance practices operating in stringent legal environments, however, show a valuation discount relative to similar companies operating in flexible legal environments. At the same time, a stronger country-level regime does not reduce the valuation discount of companies with weak governance practices. Our analysis suggests a threshold level of country development above which stringent regulation hurts the performance of well governed companies or has a neutral effect for poorly governed companies.

Suggested Citation

  • Bruno, Valentina & Claessens, Stijn, 2010. "Corporate governance and regulation: Can there be too much of a good thing?," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 461-482, October.
  • Handle: RePEc:eee:jfinin:v:19:y:2010:i:4:p:461-482
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    Keywords

    Corporate governance Country regulation Company valuation Cost of capital;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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