Accounting Seminar（2015-04）

Topic:Why do firms in weak institutional environments adopt strong corporate governance? The role of government regulation

Speaker:XiaojunZhang(Nanyang TechnologicalUniversity)

Time:Thursday,12 March, 08:30-10:00 am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting,MPAcc GSM, PKU

Abstract：

This study identifies one potential benefit of mandatory investor protection laws in weak investor protection countries neglected by the extant literature: laws help reduce firms’ bonding costs to strong corporate governance. We argue that corporate insiders (outsiders) have little incentives to voluntarily supply (demand) strong corporate governance in weak legal regimes because such voluntary bonding is not credible in weak legal regimes. However, once a corporate governance provision is mandated by law, it can serve as a more credible bonding mechanism at lower costs. Hence, many firms in weak legal regimes should comply with the corporate governance provision, especially for firms that expect to benefit more from such a bonding. Taking advantage of a sample of publicly traded Chinese firms that allows us to cleanly separate individual firms’ voluntary corporate governance practices from their mandatory corporate governance practices, we find supporting evidence for our conjectures.

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