The Comply-or-Explain approach for enforcing governance norms

Subrata Sarkar ()

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: In recent years the comply-or-explain approach for enforcing corporate governance norms has gained ground in regulatory parlance. The comply-or-explain approach has the advantage of tailoring governance norms to specific characteristics of individual companies which is believed to lead to more efficient corporate governance outcomes compared to the "one size fits all" approach that is often argued to be inherent in the comply-or-else approach. Yet, the effectiveness of the comply-or-explain approach presupposes the existence of many institutional conditions like ownership and control structure of companies, responsibility and transparency of their financial operations, efficiency of stock markets, and ability and incentives of shareholders to assess corporate behavior, all of which could take a long time to evolve and could be challenging especially for emerging economies. This article critically examines the relative advantages of the comply-or-explain approach vis- -vis the more traditional comply-or-else approach and identifies the specific institutional conditions which are required for its success in achieving effective governance of companies.

Keywords: Corporate governance; strategic behavior; governance norms; enforcement; convergence (search for similar items in EconPapers)
JEL-codes: D22 D82 G34 G38 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-08
New Economics Papers: this item is included in nep-cfn and nep-ger
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Citations: View citations in EconPapers (3)

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