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Corporate Governance

Corporate governance covers a broad range of issues of allocation of control rights within a firm, in other words, the governance defines how the authority is exercised and the quasi-rents generated by firm are allocated among different classes of stakeholders. A more narrow definition of governance covers the mechanisms in which suppliers of finance to corporations assure themselves of getting a return on their investment. The finance will not flow to the firms if investors cannot be assured of their return and without financial flows the full growth potential of a firm or a country cannot be realized. The benefit of improving corporate governance is greater availability and cheaper sources of finance, which highlights its importance, especially in developing countries.
Recent events starting with Enron scandal and following with a series of revelations of companies misrepresenting their financial statements highlighted the importance of corporate governance even in countries that are used to be considered to have “close to perfect” capital markets. In developing countries the issue of corporate governance is even more important because of the weak legal system which cannot effectively enforce contracts and resolve disputes, poor quality of information which prevents effective monitoring and widespread corruption and mistrust. Recently emerged law and finance literature has highlighted the importance of investor protection for development of financial markets and firms’ access to finance. We aim to study corporate governance issues in countries with different levels of financial development and investor protection. The questions we seek to study include the following:
  • How country-level legal system affects firm-level corporate governance mechanisms?
  • How firms endogenously adjust their governance mechanisms to their legal and institutional environment?
  • What firms decide to improve their corporate governance and why?
  • How changes in corporate governance affect subsequent performance?
  • Can firms make a difference in protecting their investors if they are operating in countries with weak legal systems?
  • Under what conditions changes in corporate governance would be more important?
  • What are the special issues related to corporate governance of financial institutions?
As a result of this research we aim to have a better understanding of what policies would be helpful in improving corporate governance mechanisms, given the constraints of different institutional environments.

Policy Research Working Papers

For more policy research working papers from the World Bank's institutional archives, search here using author’s last name, title or working paper number (“wpsxxxx”).

WPS3600What drives corporate governance reform? firm-level evidence from Eastern EuropeKlapper, Leora F; Laeven, Luc; Love, Inessa2005/05
WPS3538American Depositary Receipts (ADR) holdings of U.S. based emerging market fundsAggarwal, Reena; Dahiya, Sandeep; Klapper, Leora2005/03
WPS3101Portfolio preferences of foreign institutional investorsReena Aggarwal; Leora Klapper; Peter D. Wysocki2003/07
WPS2818Corporate governance, investor protection, and performance in emerging marketsKlapper, Leora F.; Love, Inessa2002/04
WPS2568Ownership structure and the temptation to loot : evidence from privatized firms in the Czech RepublicCull, Robert; Matesova, Jana; Shirley, Mary2001/03


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