When is Two Really Company? The Effects of Competition and Regulation on Corporate Governance

Abstract

In this paper we bring together agency stakeholder institutional and resource-dependence theories to study the direct and interactive effects of country regulation and competition on two dimensions of corporate governance: the overall quality of corporate governance of firms in a country and firm-to-firm variations in corporate governance. Interactive conditions are more representative of the real-world context of corporate governance and the contradictory pressures that firms face in such interactive conditions are better explained through the use of multiple theories of corporate governance. Using a dataset that spans 15 countries and includes 463 firms we find that firm corporate governance is better in conditions where either regulation or competition is well-developed by comparison with interactive conditions. We also find that while regulation enhances within-country convergence it is likely that competition serves to enhance across-country convergence.