DP6108 Corporate Governance and Regulation: Can There Be Too Much of a Good Thing?

Author(s): Valentina G. Bruno, Stijn Claessens
Publication Date: February 2007
Keyword(s): company valuation, corporate governance practices, regulatory regimes
JEL(s): G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=6108

For a large number of companies from different countries, we analyze how company corporate governance practices and country regulatory regimes interact in terms of company valuation. We confirm that corporate governance plays a crucial role in efficient company monitoring and shareholder protection, and consequently positively impacts valuation. We find substitution in valuation impact between corporate governance measures at the company and country level, with a possibility of over-regulation. Corporate governance appears also more valuable for companies that rely heavily on external financing, consistent with the hypothesis that corporate governance main role is to protect external financiers.