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Globalization and Similarities in Corporate Governance: A Cross-Country Analysis

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  • Khanna, Tarun
  • Kogan, Joe
  • Palepu, Krishna

Abstract

Some scholars have argued that globalization should pressure firms to adopt a common set of the most efficient corporate governance practices, while others maintain that such convergence will not occur because of a variety of forms of path-dependence. With new data on governance in 24 developing countries as well as data on laws protecting shareholders and creditors in 49 developed and developing countries, we search for evidence that globalization is correlated with similarity in corporate governance. We find robust evidence of de jure similarity in governance. Interestingly, this is not driven by convergence to U.S. standards. Rather pairs of economically interdependent countries - especially if the countries are both economically developed - appear to adopt common corporate governance standards, even after accounting for the effects of common legal origin. In contrast to the de jure results, we find virtually no evidence of de facto similarity in corporate governance in a battery of estimations at the country, industry and firm levels. This is consistent with either the proposition that complementarities result in different national systems appropriately having different corporate governance systems, or the proposition that globalization is not strong enough to overcome local vested interests. We conclude that globalization may have induced the adoption of some common corporate governance standards but that there is little evidence that these standards have been implemented.

Suggested Citation

  • Khanna, Tarun & Kogan, Joe & Palepu, Krishna, 2002. "Globalization and Similarities in Corporate Governance: A Cross-Country Analysis," CEI Working Paper Series 2002-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hit:hitcei:2002-6
    Note: First Draft: July 1, 2001; This Draft: August 9, 2002
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    References listed on IDEAS

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    Cited by:

    1. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    2. Krishna Udayasankar & Shobha S. Das, 2007. "Corporate Governance and Firm Performance: the effects of regulation and competitiveness," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(2), pages 262-271, March.
    3. Siegel, Jordan, 2005. "Can foreign firms bond themselves effectively by renting U.S. securities laws?," Journal of Financial Economics, Elsevier, vol. 75(2), pages 319-359, February.
    4. Kambhampati, Uma S., 2006. "Financial liberalisation, corporate governance and the efficiency of firms in Indian manufacturing," Structural Change and Economic Dynamics, Elsevier, vol. 17(1), pages 46-69, January.
    5. Mitton, Todd, 2004. "Corporate governance and dividend policy in emerging markets," Emerging Markets Review, Elsevier, vol. 5(4), pages 409-426, December.
    6. John Nowland, 2008. "Are East Asian Companies Benefiting from Western Board Practices?," Journal of Business Ethics, Springer, vol. 79(1), pages 133-150, April.
    7. Timothy Fogarty & Michel Magnan & Garen Markarian & Serge Bohdjalian, 2009. "Inside Agency: The Rise and Fall of Nortel," Journal of Business Ethics, Springer, vol. 84(2), pages 165-187, January.
    8. Richard Bozec, 2007. "US Market Integration and Corporate Governance Practices: evidence from Canadian companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(4), pages 535-545, July.
    9. Udayasankar, Krishna & Das, Shobha & Krishnamurti, Chandrasekhar, 2008. "When is Two Really Company? The Effects of Competition and Regulation on Corporate Governance," Working Paper Series 4020, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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