Does regulation substitute or complement governance?

A contingent claim analysis of sunflower management under board monitoring and capital regulation

“…Proposition 3 is consistent with this empirical finding. An indirect implication of Propositions 2 and 3 is that bank board monitoring and capital regulation are complements in terms of reducing equity returns and are consistent with the notion that regulators pressure boards to adopt monitoring (Becher & Frye, 2011) even though the CEO adopts a sunflower management style.…”

Do strong corporate governance firms still require political connection, and vice versa?

“…Qi et al (2010) explore the substitution relationship between political rights (from Freedom House) and creditor rights in bond issuing prices. Using data from the initial public offerings of regulated firms, Becher and Frye (2011) suggest that regulation and governance are complementary. They discover that regulators pressure firms to adopt effective monitoring structures.…”

“…Qi et al (2010), Bruno and Claessens (2010), as well as Becher and Frye (2011) use the interaction term to decide the substitution and complementary relationships. Accordingly, we also examine the interaction between CG and PC to determine their influence on each other.…”

“…Following the works of Qi et al (2010), Bruno and Claessens (2010), and Becher and Frye (2011), this section examines our hypothesis using the interaction term. Table 6 Corporate governance in politically connected firms.…”

“…First, we add to the increasing literature on CG and PC given that earlier studies focus only on the individual concepts. Our approach is similar to the studies of Qi, Roth, and Wald (2010), Becher and Frye (2011), and Bliss and Gul (2012). However, our discussion focuses more on the interaction of CG and PC when banks provide benefits in making loans.…”