Is Regulatory Competition a Problem or Irrelevant for Corporate Governance?

Romanò, Roberta

doi:10.1093/oxrep/gri013

Cited by 31 publications

(15 citation statements)

References 17 publications

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“…The resultant "one size fits all" corporate governance regulations (e.g., SOX, 2002 in the US) generally recommend the same corporate governance practices for all types of companies, despite the evidence that the type and severity of agency problems differs across companies with different ownership and control structures (Chen & Nowland, 2010;Jensen & Meckling, 1976;Shleifer & Vishny, 1986). These "one size fits all" mandatory regimes implicitly assume that they are more effective in protecting stakeholders than a privatesector oriented governance regime such as the "comply or explain" regime (Romano, 2005a(Romano, , 2005b. However, mandated approaches are unlikely to be first best solutions, given the existence of moral hazard and the imperfect observation of an agent's actions in the principal-agent relationship (Adams et al, 2010).…”

Section: Theory and Context Of The Studymentioning

confidence: 99%

Governance Quality in a “Comply or Explain” Governance Disclosure Regime

Luo¹,

Salterio²

2014

Corporate Governance: An International Review

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Manuscript Type: EmpiricalResearch Question/Issue: Do firms take advantage of the flexibility of the "comply or explain" corporate governance disclosure regime to adopt governance practices that are best suited to their needs and value-added to the firms as predicted by economic theories of the firm? Using the Canadian "comply or explain" corporate governance disclosure regime, we construct a board score measure based on the Canadian code's 47 "best practices." We employ a unique approach by positing that the "explain" disclosures indicate higher agency costs of best practice adoption or indicate the ability of the firm to improve its governance practices relative to "best practices" in light of firm specific circumstances. Research Findings/Insights: We find that our measure is strongly and positively associated with higher firm value and weakly and positively associated with better operational performance. Further, our measure is more strongly associated with both than best practice adoption measures. Theoretical/Academic Implications: Our unique measure of governance quality reveals differences in governance efficiency and effectiveness that are consistent with the theorized advantages of "comply or explain" governance disclosure regimes. Further, our results suggest that firms in a "comply or explain" regime are not employing, on average, the discretion permitted by such a regime to avoid improvements to their corporate governance practices. Practitioner/Policy Implications: Our results support the proposition that the flexibility of a "comply or explain" governance regime provides tangible financial benefits to shareholders in terms of higher firm value and returns on shareholders' equity investment.

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Section: Theory and Context Of The Studymentioning

confidence: 99%

Governance Quality in a “Comply or Explain” Governance Disclosure Regime

Luo¹,

Salterio²

2014

Corporate Governance: An International Review

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“…1 The negative effects of these non-cooperative behaviors have been studied in several contexts (e.g. tax competition (Mintz and Tulkens 1986;Wildasin 1988), legal competition in corporate charters (Romano 2005), crime deterrence (Marceau and Mongrain 2004), environmental protection (Revez 1992)). …”

Section: The Problem Of the Convergence Of Legal Rulesmentioning

confidence: 99%

On the optimal complexity of law and legal rules harmonization

2008

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“…85 It is said thus that market forces require directors to choose a beneficial regime and a 'race to the top' ensues. 86 This brings benefits such as reduced costs, greater expertise and legal certainty. 87 While lessons may be learned from the USA, as Deakin pointed out, the Delaware experience is unlikely to be repeated in the EU as the EU is on a different trajectory reflecting the particular conditions under which the national systems evolved and under which the harmonisation programme developed.…”

Section: Regulatory Competitionmentioning

confidence: 99%