دانلود رایگان مقاله انگلیسی دموکراسی، حاکمیت قانون، و حکومت شرکتی - چشم انداز نقدینگی - اشپرینگر 2017

Abstract

This study examines whether and how democracy and rule of law—two overarching country-level governance variables—influence corporate governance. Given that corporate liquidity (cash holdings) is a good channel for examining the quality of corporate governance, the effects of democracy and rule of law on corporate governance can be identified using the liquidity approach. A review of 67 countries from 1996 to 2010 demonstrates that democracy and rule of law indeed have bearings on corporate governance. More specifically, results indicate that firms are more inclined to hoard cash to take advantage of growth opportunities when the level of democracy is higher or rule of law is stronger, suggesting that agency costs are lower and interests of managers and shareholders are more aligned under such circumstances. In addition, the negative effect of debt issuance and dividend payment on cash is more pronounced when the level of democracy is higher or rule of law is stronger, suggesting that these two approaches become more effective in reducing agency costs and transitively cash holdings under such circumstances. Moreover, the positive effect of democracy and rule of law on corporate governance appears to be reinforced when rule of law is stronger and the level of democracy is higher, respectively. Furthermore, higher level of economic development helps reap the benefit of democracy and rule of law in terms of improving corporate governance and reducing agency costs.

5 Conclusions

This study contributes to the existing liquidity literature by exploring the effects of democracy and rule of law on corporate governance from the perspective of corporate liquidity. Considering that democratic procedures have been gradually discerned through modern corporate governance, the level of democracy outside the firms should influence corporate governance. In addition, good governance necessitates rule of law. Regardless of how sophisticated the governance mechanism within the firm is, corporate governance is likely to fail when strong rule of law is lacking. The effective enforcement of corporate provisions and the improvement of corporate governance are more likely to occur when the external legal environment is enhanced.

A review of 67 countries from 1996 to 2010 indicates that democracy and rule of law generally have a positive effect on the sensitivity of cash to growth opportunities, suggesting that interests of managers and outside shareholders are more aligned when the level of democracy is higher or rule of law is stronger such that managers are inclined to hoard cash to take advantage of greater growth opportunities for value maximization under such circumstances. In addition, democracy and rule of law generally have a negative effect on the cash sensitivity to leverage and dividend payout, suggesting that issuing debt and paying out dividends become more effective in reducing agency costs when the level of democracy is higher or rule of law is stronger such that the external financing cost decreases and the cash demand declines under such circumstances. Furthermore, any negative effect of democracy and rule of law on agency costs appears to be reinforced when rule of law is stronger and level of democracy is higher, respectively. Economic development also appears to ensure the benefit of democracy and rule of law in terms of reducing agency costs.