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The Comply-or-Explain approach for enforcing governance norms

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  • Subrata Sarkar

    (Indira Gandhi Institute of Development Research)

Abstract

In recent years the comply-or-explain approach for enforcing corporate governance norms has gained ground in regulatory parlance. The comply-or-explain approach has the advantage of tailoring governance norms to specific characteristics of individual companies which is believed to lead to more efficient corporate governance outcomes compared to the "one size fits all" approach that is often argued to be inherent in the comply-or-else approach. Yet, the effectiveness of the comply-or-explain approach presupposes the existence of many institutional conditions like ownership and control structure of companies, responsibility and transparency of their financial operations, efficiency of stock markets, and ability and incentives of shareholders to assess corporate behavior, all of which could take a long time to evolve and could be challenging especially for emerging economies. This article critically examines the relative advantages of the comply-or-explain approach vis- -vis the more traditional comply-or-else approach and identifies the specific institutional conditions which are required for its success in achieving effective governance of companies.

Suggested Citation

  • Subrata Sarkar, 2015. "The Comply-or-Explain approach for enforcing governance norms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2015-022, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2015-022
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2015-022.pdf
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    References listed on IDEAS

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    1. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
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    3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    4. Leuz, Christian & Nanda, Dhananjay & Wysocki, Peter D., 2003. "Earnings management and investor protection: an international comparison," Journal of Financial Economics, Elsevier, vol. 69(3), pages 505-527, September.
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    Cited by:

    1. Sergey Sinelnikov-Murylev & Alexandr Radygin (ed.), 2018. "Russian Economy in 2017. Trends and Outlooks. In Russian," Books, Gaidar Institute for Economic Policy, edition 1, volume 39, number re39-2017-ru.
    2. Costa, King & Ngcetane-Vika, Thelela, 2021. "A comparative analysis of strengths and weaknesses of corporate governance practices between two jurisdictions; UK and South Africa," AfricArxiv k4cj3, Center for Open Science.

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    More about this item

    Keywords

    Corporate governance; strategic behavior; governance norms; enforcement; convergence;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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