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Public governance and the demand for corporate governance: The role of political institutions

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  • Kuo, Nan-Ting
  • Lee, Cheng-Few

Abstract

Our study explores the association between political institutions and the demand for corporate governance. Stulz (2005) suggests that government expropriation reduces the value of corporate governance realized by investors. Accordingly, we argue that strong political institutions induce higher demand for corporate governance because they constrain government expropriation. Exploring an international sample, we find that firms in countries with stronger political institutions implement more governance provisions. Mediation analysis demonstrates that political institutions work through the channel of constraining government expropriation. Moreover, government expropriation makes shareholder direct control over firms more prevalent, where political institutions influence the allocation of control rights between managers and investors, which affects the demand for corporate governance. We contribute to the corporate governance literature and the agency problem literature.

Suggested Citation

  • Kuo, Nan-Ting & Lee, Cheng-Few, 2024. "Public governance and the demand for corporate governance: The role of political institutions," Research in International Business and Finance, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:riibaf:v:67:y:2024:i:pb:s0275531923002143
    DOI: 10.1016/j.ribaf.2023.102088
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    1. Sun, Yang & Zhang, Yu & Tang, Xinwei, 2024. "Collective asset management under corporate governance theory," Research in International Business and Finance, Elsevier, vol. 67(PB).

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