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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach

School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies

Cornell University

16 East 34th Street, 4th floor---------------------- Stuart Basefsky

New York, NY 10016 -------------------------------Director, IWS News Bureau

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International Finance Corporation (IFc)

 

CORPORATE GOVERNANCE AND DEVELOPMENT--AN UPDATE [15 March 2012]

By  Stijn Claessens and Burcin Yurtoglu

http://www.gcgf.org/ifcext/cgf.nsf/Content/Focus10

or

http://www.gcgf.org/ifcext/cgf.nsf/AttachmentsByTitle/Focus10CG&Dev/$FILE/Focus10_CG&Development.pdf

[full-text, 108 pages]

 

Press Release 15 March 2012
IFC Report Finds Better Corporate Governance Helps Strengthen Economic Development

http://www.ifc.org/ifcext/pressroom/ifcpressroom.nsf/0/ADFE9051E43069AD852579C300511801?OpenDocument

 

[excerpt from first URL above]

What do we know about the links between economic development and corporate governance in emerging markets? Stijn Claessens and Burcin Yurtoglu have sifted through scores of academic studies on various countries, sectors, and business organizations - from state-owned enterprises to publicly listed companies - to determine how corporate governance can influence economic development and well being, and what is needed to promote good practices.

The Focus 10 draws on new evidence that has become available since Focus 1: Corporate Governance and Development was published in 2003. While the paper reviews research literature, it is written to be accessible to the nonacademic audience: board members, investors, government regulators, development professionals, and other CG practitioners.

Download Focus 10 Corporate Governance and Development - An Update

Research findings sited in the Focus include:

Improved corporate governance practices increase firm share prices; hence, better-governed firms appear to enjoy a lower cost of capital.

Operational performance is higher in better corporate governance countries, although the evidence is less strong.

Well governed companies have less volatile stock prices in times of crisis.

Companies with boards composed of a higher fraction of outsider or independent directors usually have a higher market valuation.

Improvements in corporate governance quality lead to higher GDP growth, productivity growth, and the increased ratio of investment to GDP. The effect is particularly pronounced for industries that are most dependent on external finance.

When a country’s overall corporate governance and property rights systems are weak, voluntary and market corporate governance mechanisms have limited effectiveness. Proper regulatory framework and enforcement mechanisms are crucial to promote good CG practices.

Large, more concentrated ownership can be beneficial, unless there is a disparity of control and cash flow rights.

The quality of shareholder protection positively correlates with the development of countries’ capital markets.

Better corporate governance leads to a better developed financial system, which, in turn, is associated with greater access to financial services for small and medium enterprises and poorer people.

The paper concludes by identifying several main policy and research issues that require further study. For example, more research is needed on family-owned, state-owned or controlled firms that predominate in many sectors and economies.

Download Focus 10

Please send your QUESTIONS or COMMENTS for the authors to avolynets@ifc.org, and we will include them in an upcoming live Q&E session with the authors, to be announced shortly.

For more information on the topic, visit Emerging Markets Corporate Governance Research Network and Focus publication series.

Authors

Stijn Claessens is assistant director in the research department of the International Monetary Fund, where he heads the Macro-Financial Unit. He is a professor of international finance policy at the University of Amsterdam, and chair of the Emerging Markets Corporate Governance Research Network.

Burcin Yurtoglu is a professor of corporate finance at the WHU-Otto Beisheim School of Management in Vallendar, Germany.

 

 

Table of Contents

Foreword by Ira Millstein ................................................................................................................v

Abstract: Corporate Governance and Development...................................................................viii

1. Executive Summary.......................................................................................................................1

2. What is Corporate Governance, and Why is it Receiving More Attention?.............................3

What is corporate governance?.....................................................................................................3

Why has corporate governance received more attention lately?.....................................................5

3. The Link between Corporate Governance and Other Foundations of Development ............8

The link between finance and growth...........................................................................................8

The link between the development of financial systems and growth.............................................9

The link between legal foundations and growth.......................................................................... 11

The role of competition and of output and input markets in disciplining firms............................. 12

The role of ownership structures and group affiliation................................................................. 13

4. How Does Corporate Governance Matter for Growth and Development?...........................17

Increased access to financing....................................................................................................... 17

Higher firm valuation and better operational performance..........................................................20

Less volatile stock prices and reduced risk of financial crises.........................................................23

Better functioning financial markets and greater cross-border investments..................................24

Better relations with other stakeholders.......................................................................................25

Stakeholder management.................................................................................................27

Social issue participation...................................................................................................27

5. Corporate Governance Reform..................................................................................................30

Recent country-level reforms and their impact.............................................................................30

Legal reforms..............................................................................................................................31

Corporate governance codes and convergence............................................................................32

The role of firm-level voluntary corporate governance actions.....................................................33

Voluntary adoption of corporate governance practices.....................................................33

Boards..............................................................................................................................35

Cross-listings....................................................................................................................35

Other mechanisms............................................................................................................36

The role of political economy factors...........................................................................................37

6. Conclusions and Areas for Future Research.............................................................................41

Ownership structures and relationships with performance........................................................... 41

Corporate governance and stakeholders’ roles.............................................................................43

Enforcement, both private and public, and dynamic changes.......................................................44

7. Commentary by Philip Koh.........................................................................................................46

8. Tables .........................................................................................................................................50

Table 1: Summary of Key Studies on Ownership Structures.........................................................50

Table 2: Overview of Selected Studies on the Relationship between

Ownership Structures and Corporate Performance........................................................58

Table 3: Overview of Selected Studies on the Effects of Legal Changes......................................65

Table 4: Overview of Selected Studies on the Relationship between

CG Indexes and Performance.........................................................................................67

Table 5: Summary of Key Empirical Studies on Boards of Directors..............................................70

Table 6: Overview of Selected Studies on Cross-Listings..............................................................72

Table 7: Overview of Selected Studies on Political Connections................................................... 74

9. References....................................................................................................................................76

 

 

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