Corporate Stability and Economic Growth

Artyom Durnev () and E. Han Kim ()

No 554, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Newly released data on corporate governance and disclosure practices reveal wide within-country variation, with the variation increasing as legal environment gets less investor friendly. This paper examines why firms practice high-quality governance when law does not require it; firm attributes that are related to the quality of governance; how the attributes interact with legal environment; and the relation between firm valuation and corporate governance. A simple model, in which a controlling shareholder trades off private benefits of diversion against costs that vary across countries and time, identifies three relevant firm attributes: investment opportunities, external financing, and ownership structure. Using firm-level governance and transparency data on 859 firms in 27 countries, we find that firms with greater growth opportunities, greater needs for external financing, and more concentrated cash flow rights practice higher-quality governance and disclose more. Moreover, firms that score higher in governance and transparency rankings are valued higher in the stock market. Equally important, all these relations are stronger in countries that are less investor friendly, demonstrating that firms do adapt to poor legal environments to establish efficient governance practices.

Keywords: Corporate Governance; Investment Opportunities; External Financing; Ownership; Legal Environment; Valuation (search for similar items in EconPapers)
JEL-codes: G32 K23 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2003-04-01
New Economics Papers: this item is included in nep-cfn and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp554.pdf
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp554.pdf [302 Found]--> https://wdi.umich.edu/files/Publications/WorkingPapers/wp554.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:2003-554

Access Statistics for this paper

More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Bibliographic data for series maintained by WDI ().