TY - JOUR AU - Aggarwal, Reena AU - Erel, Isil AU - Stulz, René AU - Williamson, Rohan TI - Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences JF - National Bureau of Economic Research Working Paper Series VL - No. 13288 PY - 2007 Y2 - August 2007 DO - 10.3386/w13288 UR - http://www.nber.org/papers/w13288 L1 - http://www.nber.org/papers/w13288.pdf N1 - Author contact info: Reena Aggarwal Georgetown University Finance Group McDonough School of Business 529 Hariri Washington, DC 20057 Tel: 202-687-3784 E-Mail: aggarwal@georgetown.edu Isil Erel Fisher College of Business The Ohio State University 2100 Neil Avenue Columbus, OH 43210 Tel: 614/292-5174 E-Mail: erel@fisher.osu.edu René M. Stulz The Ohio State University Fisher College of Business 806A Fisher Hall Columbus, OH 43210-1144 Tel: 614/292-1970 Fax: 614/292-2359 E-Mail: stulz@cob.osu.edu Rohan Williamson McDonough School of Business Georgetown University 587 Hariri Building Washington, DC 20057 Tel: 202 687 2284 Fax: 202 687 4031 E-Mail: WILLIARG@georgetown.edu M1 - published as Reena Aggarwal, Isil Erel, René Stulz, Rohan Williamson. "Differences in Governance Practices between U.S. and Foreign Firms: Measurement, Causes, and Consequences," in Michael Weisbach, editor, "Corporate Governance" The Review of Financial Studies, vol. 23, no. 3, March 2010 (2010) AB - Using an index which increases as a firm adopts more governance attributes, we find that 12.7% of foreign firms have a higher index than matching U.S. firms. The best predictor for whether a foreign firm adopts more governance attributes than a comparable U.S. firm is whether the firm comes from a common law country. We show that the value of foreign firms is negatively related to the difference between their governance index and the index of matching U.S. firms. This relation is robust to various approaches to control for the endogeneity of corporate governance and is consistent with the hypothesis that foreign firms are valued less because country characteristics make it suboptimal for them to invest as much in governance as comparable U.S. firms. Overall, our evidence suggests that firm-level governance attributes are complementary to rather than substitutes for country-level investor protection, so that better country-level investor protection makes it optimal for firms to invest more in internal governance. Our evidence supports the view that minority shareholders of a typical foreign firm would benefit from an increase in investment in governance, but that the firm's controlling shareholder and possibly other stakeholders would not. ER -