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Corporate Governance, Legal Origin & the Persistence of Profits

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Listed:
  • Dominic Chai
  • Simon Deakin
  • Prabirjit Sarkar
  • Ajit Singh

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.

Suggested Citation

  • Dominic Chai & Simon Deakin & Prabirjit Sarkar & Ajit Singh, 2014. "Corporate Governance, Legal Origin & the Persistence of Profits," Working Papers wp465, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp465
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    File URL: https://www.jbs.cam.ac.uk/cbrwp465/
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    References listed on IDEAS

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    More about this item

    Keywords

    Legal origin; corporate governance; shareholder protection; product market competition; persistence of profits;
    All these keywords.

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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