Corporate Governance, Legal Origin & the Persistence of Profits

Dominic Chai, Simon Deakin, Prabirjit Sarkar () and Ajit Singh

Working Papers from Centre for Business Research, University of Cambridge

Abstract: The persistence of abnormal profits can be interpreted as evidence of the presence of firms which are successful over time in capturing rents from product or process innovation. Using a large sample of manufacturing firms in 18 developed and developing countries, we estimate the impact of laws governing shareholder rights on the persistence of firm-level profits. We find that higher shareholder protection reduces the persistence of profits in common law countries and increases it in civil law countries. Because shareholder protection is higher, on average, in common law countries, this finding is consistent with the view that increases in legally mandated or encouraged shareholder protection beyond a certain point have a negative impact on firm-level innovation.

Keywords: Legal origin; corporate governance; shareholder protection; product market competition; persistence of profits (search for similar items in EconPapers)
JEL-codes: G28 K22 L22 L25 (search for similar items in EconPapers)
Date: 2014-12
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