The Role of Self-Regulation in Corporate Governance : Evidence from the Netherlands

The purpose of this paper is to gather evidence on the success of market forces in promoting investor interests through self-regulation.Corporate governance is a complex mechanism design problem that is both economic and legal/political based.As such there is great interest in whether (and when) market forces alone are sufficient to prompt change, and whether (and when) additional legal/political actions are required to write and enforce contracts between the owners and managers of capital.The Netherlands provides an excellent opportunity to gather such information.In 1996, a private sector Committee was formed to initiate debate and change in the balance of power between a company's management and investors.In 1997, the Committee issued its recommendations and one year later the Committee initiated a project to assess the impact of the report.We identify the corporate governance variables that are linked to firm value and assess the impact of the committee's recommendations on the identified variables.Finally, we use event study techniques to assess investors reactions to the various events associated with the evolution of corporate governance practices in the Netherlands during this period.