Voluntary Adoption of Corporate Governance Mechanisms
We examine the extent to which firms adopt recommended but not required corporate governance guidelines and establish that firms voluntarily implement suggested domestic best practices and the mandatory practices of neighboring countries as well. Drawing on the intuition of a principal-agent model in which the entrepreneur cannot fund all positive NPV projects, we hypothesize that access to capital is a primary determinant of the willingness of firms to voluntarily adopt corporate governance mechanisms. Our empirical results provide significant evidence that firms voluntarily adopt corporate governance guidelines. These results suggest that global competition for capital encourages firms to voluntarily adopt governance mechanisms that are attractive to both domestic and foreign investors. We provide some evidence that the integration of global capital markets may lead to convergence in governance standards across countries.
Business Organizations Law | Securities Law
Date of this Version
Anita I. Anand, Frank Milne, and Lynnette Purda, "Voluntary Adoption of Corporate Governance Mechanisms" (April 21, 2006). bepress Legal Series. bepress Legal Series.Working Paper 1277.