Corporate Governance and the Returns on Investment

Klaus Gugler (), Dennis Mueller () and Burcin Yurtoglu

Journal of Law and Economics, 2004, vol. 47, issue 2, 589-633

Abstract: We analyze the impact of corporate governance institutions and ownership structures on company returns on investment by using a sample of more than 19,000 companies from 61 countries across the world. We show that the origin of a country's legal system proves to be the most important determinant of investment performance. Companies in countries with a legal system of English origin earn returns on investment that are at least as large as their costs of capital. Companies in all countries with civil-law systems earn on average returns on investment below their costs of capital. Furthermore, differences in investment performance that are related to a country's legal system dominate differences that are related to ownership structure. We also present considerable evidence that managerial entrenchment worsens a company's investment performance.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jlawec:y:2004:v:47:i:2:p:589-633

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