Convergence to shareholder primacy corporate governance: evidence from a leximetric analysis of the evolution of corporate governance regulations in 21 countries, 1995-2014

Abstract

Purpose For the past two and half decades, there has been a marked shift in the corporate governance regulations around the world. The change is more remarkable in developing countries where countries with little or no corporate governance regime have adopted “world class” standards. While there can be a debate on whether law in books actually translates into law in action, in the meantime it might be interesting to analyse the law in books to understand how the corporate governance regime has evolved in the past 20 years. This paper quantitatively tracks 21 countries, most of them being developing and emerging economies, over a period of 20 years. The period covers 1995 to 2014; thus, it traverses the pre and post crisis period in 1999 and 2008. Thus, the paper also provides a snapshot of the macrolegal changes that the countries engage in hoping to stave off the next crisis. The paper uses over 50 parameters modelled on the OECD Principles of Corporate Governance. The paper confirms the suspicion that corporate governance norms around the developing economies are converging on shareholder primacy end of the continuum. The rate of convergence was highest just before the financial crisis of 2008 and has since then slowed down. Design/methodology/approach The paper uses data collected from experts. They filled up detailed questionnaire which quizzed them on the rules relating to corporate governance norms in their country and asked them to retrospectively check their data every five years for the past 20 years. This provided an excellent overview as to how the law has evolved in the past two decades on corporate governance. The data were then tabulated using a scoring sheet and then was put together using item response theory (IRT) which is a Bayesian method similar to factor analysis. The paper then follows a comparative approach using heatmaps to analyse the evolution of corporate governance in developing countries. Findings Corporate governance norms around the developing economies are converging on shareholder primacy end of the continuum. The rate of convergence was highest just before the financial crisis of 2008 and has since then slowed down. Originality/value This is the first time that corporate governance panel data analysis has been carried out on top developing countries across so many parameters for such a long period. This paper also uses Bayesian IRT modelling to analyse the evolution which is novel in its approach especially in the corporate governance literature. The paper thus provides a clear view on the evolution of corporate governance norms and how they are converging on a particular ideology.

Convergence and compliance of corporate governance codes: a study of 11 Asian emerging economies

“…Similar arguments were also provided by Chhillar and Lellapalli (2015). A slowdown in convergence of insider models toward outsider model in the aftermath of the 2008 global financial crisis has been observed by many authors (Rühmkorf et al , 2020; Samanta, 2019)…”

“…Similarly, Samanta (2019) reported an increased convergence of CG norms of developing economies toward shareholder-oriented models. Samanta also noticed a slowdown in the convergence rate since the financial crisis of 2008.…”

A Literature Review on Corporate Governance Mechanisms: Past, Present, and Future*

“…However, they discover consistent results in most CGQ-performance studies conducted in emerging and transitional economies as well as in Europe, documenting that CGQ has a significantly positive effect on performance. Samanta (2019) examines how the corporate governance regimes of developing countries have evolved over 20 years. Results are based on a survey conducted in 21 countries from 1995 to 2014.…”

“…Samanta (2019) examines how the corporate governance regimes of developing countries have evolved over 20 years. Results are based on a survey conducted in 21 countries from 1995 to 2014.…”

The effect of borrower country financial system and corporate governance system types on the spread of syndicated loans

“…Therefore, the corporate governance systems also change. Nonetheless, groups of countries share similar legal and economic features and are mutually influenced, leading them to share similar corporate governance mechanisms (Ho ¨risch et al, 2017;Samanta, 2019). According to Doidge et al (2007), the country's characteristics are even more relevant than corporates' characteristics for investor protection and to increase governance ratings.…”