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Voluntary Adoption of Corporate Governance Mechanisms

  • Anita Anand

    (University of Toronto)

  • Frank Milne

    ()

    (Queen's University)

  • Lynnette Purda

    (Queen's University)

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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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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Web page: http://qed.econ.queensu.ca/
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  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.
  2. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  4. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  5. John Y. Campbell, 1993. "Understanding Risk and Return," NBER Working Papers 4554, National Bureau of Economic Research, Inc.
  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.
  7. Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why are foreign firms listed in the U.S. worth more?," Journal of Financial Economics, Elsevier, vol. 71(2), pages 205-238, February.
  8. Tiroley, Jean, 2000. "Corporate Governance," CEI Working Paper Series 2000-1, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
  9. Art Durnev & E. Han Kim, 2005. "To Steal or Not to Steal: Firm Attributes, Legal Environment, and Valuation," Journal of Finance, American Finance Association, vol. 60(3), pages 1461-1493, 06.
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