Corporate Governance and Regulation: Can There be too Much of a Good Thing?

by Valentina Bruno and Stijn Claessens, for the ECGI, at SSRN, December 10, 2009.

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 a few specific governance practices 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…

To download this paper click here.

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1 Response to “Corporate Governance and Regulation: Can There be too Much of a Good Thing?”


  1. 1 The Destructionist May 28, 2010 at 4:17 am

    In light of the BP oil calamity it’s quite obvious that something must be done, and fast, if we are to save our world from corporations that would prefer to place huge profits above that of our environmental and financial welfare.

    As large corporations gobble up smaller corporations in an attempt to seize an even bigger piece of the global economic pie, it seems that businesses have been allowed to grow, unfettered, into unwieldy corporate behemoths (a.k.a., British Petroleum) with little, if any, regulations regarding their obligations to national sovereignties or allegiances.

    Maybe it’s just me, but I believe that if a corporation begins its “life” in a particular country, than it has an obligation to that country and its people: due in part to the patronage of its citizens throughout the years in helping that corporation to grow. When I hear about American businesses pulling up stakes and moving to other countries in lieu of cheaper labor and supplies elsewhere, I feel both embarrassed and betrayed. (They would be nothing if it weren’t for people like you and me. After all, we purchased their services, time and time again, fostering them constantly by giving them the opportunity to flourish. Our final reward for all our efforts? Millions of fellow Americans out of work, all desperately hoping that their unemployment benefits never run out.)

    I agree that the bad news is not just happening here in America, but around the globe. I blame that on the evolution of the business model: over the years, it has been compressed into a precise science in an effort to squeeze every last drop of profit out of the proverbial “bottom-line.” I began to notice the change in the late 1970’s when I was in my teens. Back then, it was a different world for me and I didn’t seem to care too much. Today however, it is a different story.

    What can we collectively do as Americans?

    Contact your representatives in the House and Senate. Let them know that

    big business should be regulated and ask them to enact laws to:

    1.Ensure that all corporations “born” within the United States deter from any and all actions that would adversely affect our country;
    2.Place high tariffs on imports from American businesses that move their bases of operations (not to mention our jobs) to other regions of the world;
    3.Work to limit their corporate power and influence in Washington D.C. by passing laws whereby politicians, found to have ties with said corporations or corporate lobbyists resign.
    4.Endeavor to ban all corporate favors and corporate lobbyists from Washington D.C.
    Essentially, it’s up to us to fashion our own future. If we don’t, rest assured that someone, or some corporation will.

    •(I know that BP was not born and reared here in the United States. I was merely using it as a reference as to what corporations are capable of doing if left to their own devices.)


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