Contractual corporate governance

Abstract

Companies have the choice to deviate from their national corporate governance standards by opting into another system. They can do so via contractual devices -such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings -which enable them to choose their preferred level of investor protection and regulation. This paper reviews these three main contractual governance devices, their effect on value, and whether their adoption by firms induces a race to the bottom or a race to the top. Indeed, firms may opt for less shareholderorientation or investor protection (shareholder-expropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).

Evidence on the international evolution and convergence of corporate governance regulations

“…They can do so via contractual devices -such as cross-border mergers and acquisitions, (re)incorporations, and cross-listings -which enable firms to choose their preferred level of investor protection and regulation. Indeed, as Goergen and Renneboog (2008) point out firms may opt for less shareholder-orientation or investor protection (shareholderexpropriation hypothesis) rather than for more stringent rules that require firms to focus on shareholder value (bonding hypothesis).…”

Private contracting and corporate governance: Evidence from the provision of tag-along rights in Brazil

“…Similarly, Lerner and Schoar (2005) identify cross-country variation in the organization of private equity investment and find that these variations relate to the degree of investor protection in corporate law. Correspondingly, a number of articles examine firms' incentives to deviate from their national corporate governance standards by opting into other systems either through cross-border mergers or through acquisitions, re-incorporations or cross-listings (see the survey by Goergen and Renneboog, 2008).…”

Are There Non-linear Effects of Banking Relationships and Ownership Concentration on Operational Performance? Empirical Evidence from Portuguese SMEs Using Cross-section Analysis and Panel Data

“…Several supervision and control mechanisms help reduce the discretionary behaviour of agents, including directors, related to the purpose of maximizing company value. These mechanisms include: i) the external context: the labour market, the capital market, the market for goods and services, and the legal/political system, constituting disciplinary mechanisms regarding actions by directors, helping to align the goals and interests of the agent and the principal (Harford et al, 2008, Goergen andRenneboog, 2008), and ii) internally: ownership concentration, the insider ownership, the nature of ownership, the composition of the managing bodies (directors), the level of debt, the remuneration system and dividend policy (Cuervo, 2002, Andres, 2008.…”