Enhancing Firm Sustainability Through Governance
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Enhancing Firm Sustainability Through Governance

The Relational Corporate Governance Approach

Francesco de Zwart

This important book presents a fresh perspective on corporate governance and how the relationship between governance mechanisms, processes and variables should be understood through a new unifying theory: the relational corporate governance approach. The approach acts as a tool for analysing the governance health of individual companies and suggests the actions required to remedy sub-optimal governance arrangements. A wide selection of articles, empirical studies and literature have been translated into an original theory which complements existing law and economics models of the firm.
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Chapter 7: Empirical studies Key Field No 4 (Part 1): National shareholder protection regime and Board factors I

Francesco de Zwart


In this chapter, the relational approach begins the process of examining the governance variables taken from the governance codes in Chapter 6. Chapter 7 reviews in detail law, economic and econometric literature from the US, UK, Europe and Australia that comprises empirical studies outlined in Key Field No 4. In Chapter 2, the relational approach introduced the perceived general effects said to flow from the adoption of governance variables in the for-profit sphere. This was not challenged at that time. Beginning in this Chapter 7, Key Field No 4 examines the firm-specific benefits or, on the contrary, costs or disadvantages argued to flow from these variables. This will be done by reference to empirical studies of the effectiveness of governance variables in reducing agency costs and enhancing the long-term survival of the firm. Such efficiency and survival – an over-arching purpose of the relational approach – is assessed in these studies principally by measures of firm operating performance/profit and firm value. Other firm-specific outcomes such as ‘shareholder payout’, the cost of equity capital and the probability of earnings manipulation are also examined. There are three types of empirical studies examined in this chapter. First, Chapter 7 examines questions relating to whether a particular group of governance variables together improve firm operating performance, firm value and shareholder payout. The studies suggest that these measures may be improved by groupings of governance variables.

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