Corporate Governance and Ownership : Evidence from a Non-Mandatory Regulation

We study the governance choices of firms in a voluntary regulatory regime where we can directly observe the impact of ownership on corporate governance practices pertaining to the composition of the board of directors. We find that firms with a dominant shareholder are more likely to deviate from standards of best practice in corporate governance. However, lesser governance standards in firms where a dominant shareholder is present are not associated with lower performance. In contrast, governance practices and disclosures matter for performance in widely-held firms because they alleviate monitoring and free-rider problems. Our results suggest that the impact of corporate governance practices is the result of complex governance interdependences