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Corporate Governance and the Returns on Investment

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  • Gugler, Klaus
  • Mueller, Dennis C
  • Yurtoglu, B Burcin

Abstract

We analyze the impact of corporate governance institutions and ownership structures on company returns on investment by using a sample of more than 19,000 companies from 61 countries across the world. We show that the origin of a country's legal system proves to be the most important determinant of investment performance. Companies in countries with a legal system of English origin earn returns on investment that are at least as large as their costs of capital. Companies in all countries with civil-law systems earn on average returns on investment below their costs of capital. Furthermore, differences in investment performance that are related to a country's legal system dominate differences that are related to ownership structure. We also present considerable evidence that managerial entrenchment worsens a company's investment performance.

Suggested Citation

  • Gugler, Klaus & Mueller, Dennis C & Yurtoglu, B Burcin, 2004. "Corporate Governance and the Returns on Investment," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 589-633, October.
  • Handle: RePEc:ucp:jlawec:y:2004:v:47:i:2:p:589-633
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    File URL: http://dx.doi.org/10.1086/425062
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