Corporate Governance Reforms in the EU: Do They Matter and How?
Author:
Mr. Iryna V. Ivaschenko
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Ms. Petya Koeva Brooks
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Contributor Notes

Authors’ E-Mail Addresses: iivaschenko@imf.org; pkoeva@imf.org
Publication Date:
01 Apr 2008
eISBN:
9781451869521
Language:
English
Keywords:
WP; shareholder; company; shareholder empowerment
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This paper proposes a new approach to quantifying the effects of corporate governance reforms, by focusing on the dynamics of the voting premiums, a measure of the private benefits of control in a corporation. The results indicate that the reforms have been successful in reducing the voting premiums EU-wide. Moreover, more intense and broad reform efforts (such as introducing national reforms beyond and above the EU-wide initiatives) bring higher and longer lasting benefits. Our findings also suggest that the market for corporate control in Europe has become more integrated, as illustrated by the lower dispersion in voting premiums across countries and over time.

Abstract

This paper proposes a new approach to quantifying the effects of corporate governance reforms, by focusing on the dynamics of the voting premiums, a measure of the private benefits of control in a corporation. The results indicate that the reforms have been successful in reducing the voting premiums EU-wide. Moreover, more intense and broad reform efforts (such as introducing national reforms beyond and above the EU-wide initiatives) bring higher and longer lasting benefits. Our findings also suggest that the market for corporate control in Europe has become more integrated, as illustrated by the lower dispersion in voting premiums across countries and over time.

I. Introduction

The significance of corporate governance has become well recognized in recent years.1 Corporate governance is often defined as the system by which companies are directed and controlled for the benefit of shareholders. Better governance practices allow firms to access capital markets on better terms and can lead to higher firm valuation, rates of return, and performance. By mitigating the misalignment of incentives (i.e., the “agency problem”) among shareholders and between shareholders and managers, better governance can also reduce the scope for undertaking inefficient investments—and therefore, boost growth.2 Moreover, integration and convergence in the corporate governance environment and the market for corporate control are an important transmission channel of organizational and technological innovations across countries.3

A key notion in the corporate governance literature is the private benefits of control.4 The separation of ownership and control in the corporation gives rise to agency problems that have been studied extensively in the theoretical and empirical literature.5 In this context, the private benefits of control are defined as the value that controlling shareholders can extract to the detriment of minority shareholders. Institutional factors that determine the private benefits of control include the legal environment (i.e., the degree of investor protection, the strength of public and private enforcement), takeover rules, corporate charter provisions, etc. For example, weaker insider trading legislation and enforcement have been linked to higher cost of capital (Bhattacharya and Daouk, 2002), while poor protection of minority investors by the legal environment has been associated with less developed financial markets (La Porta, et al, 2002).

The past decade witnessed a wave of corporate governance reforms in Europe, aimed at reducing the power of dominant shareholders and fostering integration of the market for corporate control. At the national level, reforms were particularly far-reaching in three major countries (France, Germany, and Italy), with the objective of raising the efficiency and competitiveness of the corporate sector in these countries and to increase investor protection. Other reforms were initiated at the EU level to integrate and harmonize company law and corporate governance across countries, with the ultimate goal of promoting a fully integrated European capital market. To some extent too, the reforms were also in response to major U.S. and European corporate scandals.6 Key elements of both sets of reforms were to empower minority shareholders, improve internal governance, enhance disclosure requirements, and strengthen public enforcement (Enriques and Volpin, 2007). The underlying objectives were to decrease the power of dominant shareholders—and, therefore, the private benefits of corporate control—and to promote integration and harmonization of national corporate governance regimes.

This paper poses two main questions. First, have corporate governance reforms succeeded in improving corporate governance and curbing the power of dominant shareholders in Europe? (Or, put differently, is there evidence that the reforms have reduced the private benefits of control?) Has the improvement (if any) been larger in countries that implemented their own reforms on top of those of the EU? Second, have the reforms achieved a de facto convergence in corporate governance regimes, as proxied by the private benefits of control, and integration in the market for corporate control in Europe?

The main contribution of this paper is to address these questions quantitatively, using a financial market-based proxy for the private benefits of corporate control. As the private benefits of control are generally unobservable, their measurement is difficult. But it is not impossible: when a firm has more than two classes of publicly traded shares with different voting rights, the percentage difference between the prices of high- and low-voting shares is called the “voting premium” and can be used as a proxy for the private benefits of control (Nenova, 2003; Doidge, 2004). If the reforms were effective, the value of corporate control should diminish, and the voting premium should fall. The observed decline, if any, should be more pronounced in countries that implemented both EU and national reforms than in countries that introduced EU reforms only. In addition, the dispersion of voting premiums should decline, indicating that the private benefits of corporate control have converged across countries, i.e., that the market for corporate control in Europe has become more integrated. To our knowledge, our paper is the first one to use the voting premium in this context.

The rest of the paper is organized as follows. The next section outlines the main corporate governance reforms implemented at the national level (in France, Germany, and Italy) and at the EU level. Section III explains how the corporate value of control is measured in this paper. Section IV describes the methodology and data used in the analysis. Section V presents the main findings. Section VI concludes.

II. National and EU Corporate Governance Reforms

A. National Reforms

Over the past decade, the three largest economies in continental Europe (Italy, Germany, and France) have introduced numerous corporate governance reforms to protect investors. The key initiatives in this core group of countries (C3) are summarized in Tables 1–3. As discussed in Enriques and Volpin (2007), the reforms have focused on increasing investor protection in four areas:

  • Empowering minority shareholders. In this area, key initiatives have been to give greater voice to shareholders, improve private enforcement, introduce new rules promoting “one-share one-vote” and control transactions (e.g., implementing a “mandatory bid” rule that requires the party that obtains a controlling block of the shares to offer to acquire the rest of the shares at above market price).

  • Enhancing internal governance. The focus has been on making corporate boards more effective and tightening rules on third-party transactions (e.g., requiring board members to disclose to any interest, direct or indirect, in a transaction).

  • Improving disclosure requirements. The actions taken in this area have been to introduce (or update) corporate governance codes and implement new, more stringent rules on self-dealing and compensation, as well as financial reporting and audit.

  • Strengthening public enforcement. Reform efforts have included giving more powers to the supervisory authority, introducing sanctions against market abuse, and enforcing rules on financial reporting auditing.

Table 1.

Italy: National Corporate Governance Reforms

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Source: Enriques and Volpin (2007).
Table 2.

Germany: National Corporate Governance Reforms

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Source: Enriquesand Volpin (2007).
Table 3.

France: National Corporate Governance Reforms

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Source: Enriques and Volpin (2007).

B. EU Reforms

In addition to curbing the power of dominant shareholders, EU reforms focused on harmonizing and integrating company law and corporate governance across countries (European Commission, 2003; Enriques and Gatti, 2006). In fact, the number of EU regulations and directives on corporate governance increased dramatically in the early 2000 (see chart). Prominent examples include the Transparency Directive, the Market Abuse Directive, the Prospectus Directive, a regulation on the application of international accounting standards, IAS/IFRS. (A more comprehensive list of reforms is included in Table 4). Although to some extent these efforts were in response to major U.S. and European scandals, most measures were implemented as part of the Financial Services Action Plan, with the underlying objective of promoting a fully integrated European capital market.

Table 4.

EU Corporate Governance Reforms

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Sources: Enriques and Gatti (2006); and European Commission.

To what extent the EU (and national) reforms have succeeded in bringing about convergence in corporate governance regimes and integration of the market for corporate control is an open question. In this context, it is important to distinguish between de jure and de facto convergence in corporate governance standards. The bulk of evidence on de jure convergence is substantial (Mallin, 2002; Wymeersch, 2002), including in controversial areas such as takeover regulation (Goergen, Martynova, and Renneboog, 2005). The evidence on de facto convergence is more scarce and often indirect, however. Some papers focus on the evolution of ownership structures in large European countries and shows that they exhibit a falling degree of concentration.7 Others contain case studies of individual countries (Germany, France).8 The most concrete empirical evidence comes from examining the evolution of corporate governance ratings of large European companies between 2000 and 2003, which suggests certain ratings (for board structure and disclosure) have converged across countries and over time (Wojcik, 2006). Therefore, to the best of our knowledge, this paper uses a novel approach to answer the question of whether there is de facto corporate governance convergence in Europe.

III. Measuring the Private Value of Control

Measuring the value of corporate control is difficult by definition. Specifically, the right to control a corporation is valuable because it provides controlling agents with opportunities to extract private benefits, a concept that is difficult to standardize and measure. Nevertheless, two methods have been proposed in the literature to tackle this measurement problem. The first infers the value of control from the voting premium embedded in the valuation of different types of shares issued by dual-class firms (e.g., Lease, et al, 1983, 1984; Zingales, 1994, 1995; Nenova, 2003; and Doidge, 2004). The second method measures the difference between prices of shares in control blocks and the regular shares (Dyck and Zingales, 2002).

We focus on the voting premium method, as data on dual-class firms are relatively easy to obtain. Following the approach of Nenova (2003) and Doidge (2004), we collect data on a large sample of European and Canadian firms with dual-class shares. In particular, following Doidge (2004), the voting premium is defined as the ratio of the price of a voting right (high-voting share, PH) to the price of a cash flow right (low-voting share, PL):

VP = ( P H − P L ) / P L ( 1 )

This definition of the voting premium is comparable across firms with different voting arrangements, which is especially important for cross-country comparisons. Moreover, although the voting premium as defined above may be biased upward (because it is calculated from prices set by minority shareholders rather than by those in control), it is still suitable for time-series analysis.

Also, equation (1) is the most straightforward definition of the voting premium. More sophisticated measures used in the literature involve weighing the prices of high-and low-voting shares by the relative number of votes per each class of share and by the number of shares outstanding for each class (e.g., Nenova, 2003). However, Doidge (2004) shows that different measures of the voting premium do not change the time-series and cross-firm comparison results. Hence, we concentrate on the simplest measure as defined in (1).

IV. Data and Methodology

A. Data Sample and Descriptive Statistics

The sample is constructed by analyzing all firms included in the country lists provided by Data Stream from 1992 to 2007. The companies comprising the sample satisfy the following criteria:9 (a) they have at least two classes of shares with different voting rights; (b) both share classes are publicly traded; (c) the low-voting class is not convertible into the high-voting class; (d) neither class receives a fixed dividend, which is independent of the other class; and (e) neither class is redeemable or callable by the company.

The data are collected for nine (EU and non-EU) industrialized countries that allow dual shares and are presented in Data Stream (France, Germany, Italy, Denmark, Finland, Sweden, U.K., Norway, and Canada).10 After imposing these criteria, a sample of 342 firms is selected. The number of dual-share companies varies greatly across the core group: from more than 80 in Italy and 68 in Germany to 15 in France (Table 5). Each country in the control group has at least 20 dual-class firms. Although the long sample effectively corrects for survivorship bias,11 we further eliminate it by including both actively traded shares and shares that have been withdrawn from the market or expired.

Table 5.

Number of Dual-Class Firms by Country 1/

(1992–2007 period average)

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Source: Data Stream

Includes firms with shares satsfying conditions (a)–(e) in the text.

For each share, Wednesday-to-Wednesday weekly closing data on share prices and other control variables are collected from the Data Stream and Bloomberg for the period from January 1, 1992 to December 31, 2007.12 The voting premium is calculated using equation (1) for each firm for the entire time period and then averaged for each year to isolate temporary price shocks related to market and company news. If there is more than one pair of voting and nonvoting shares satisfying conditions (a)-(e) for a given company, we choose the pair that has the closest characteristics except for the difference in the voting rights.13

B. Empirical Strategy

To address the first question of whether reforms have affected the private value of control, we first examine the dynamics of the voting premium for each country in the core group (France, Germany, and Italy) during the period 1992-2007. The relationship between the evolution of the premium and the reforms initiated at the EU and national levels in these countries is then compared with the trends in two control groups comprising EU (Finland, Denmark, Sweden, U.K.) and non-EU countries (Norway, Canada), respectively. The control groups were comprised of the countries for which the data satisfying the filtering requirements were available (see the previous section on the data selection process), and which appear to have had fewer reforms during the sample period considered compared to the core group.

The analysis is conducted within a panel regression framework, using two empirical specifications.

The first specification allows to test whether the voting premium declines by more following a reform-heavy year (captured by a time dummy) than before and after it. To do this, a one-year lead of the (firm-specific) observation for the voting premium is regressed on country dummies, year dummies, and firm-specific fixed effects. The country-specific fixed effects are included because they are the most important determinant accounting for the crosscountry variation of the voting premium (Doidge, 2004).14 The firm-level fixed effects are added in order to account for other firm-level factors may affect the voting premium. Hence, including both effects allows to use the most parsimonious specification:

VP i , t , y + 1 = ∑ c = 1 9 α c D c + ∑ y = 1992 2006 β y D y + δ i + ε i t , ( 2 )

where VPi, t, y+1 is a weekly voting premium for a company i, year y+1; Dc is a country dummy, for c ⊂ (1; 9) (1= Canada, 2 = Denmark, 3 = Finland, 4 = France, 5 = Germany, 6 = Italy, 7 = Norway, 8 = Sweden, 9 = U.K.), Dy is a year dummy, for y ⊂ (1992; 2006), δi is a firm-specific fixed effects, and εit is a residual.

The second specification also includes interaction terms between the country and time dummies, (in addition to the above regressors) in order to test whether the change in the voting premium in a given C3 country is significantly different from that in the two control groups:

VP i , t , y + 1 = ∑ c = 1 9 α c D c + ∑ y = 1992 2006 β y D y + ∑ c = 1 9 ∑ y = 1992 2006 λ c , y D c , y + δ i + ε i t , ( 3 )

where Dc, y is an interaction term between each country and year dummy, respectively. To answer the second question of whether reforms have been associated with a convergence in the value of corporate control across the EU, we proceed in two steps:

First, the (constructed) country series for the voting premium are used to gauge the degree of convergence in corporate control levels across the seven EU countries in the sample. This is done by computing the standard deviation of the country-specific voting premiums for each year in the sample. Significant reductions in these parameters would indicate that the values of corporate control have converged across EU countries.

Second, for each year, all firm-level observations are pooled together across countries, in order to construct an overall distribution of voting premiums for the given year. The evolution of this distribution can be tracked over the period 1992–2007. A compression of the distribution over time would imply that the voting premiums in the EU are becoming increasingly similar in magnitude.

V. Main Findings

A. Voting Premiums Across Time and Countries

The voting premium varies widely across countries (Table 6). Calculated as the average over the 1992–2007 period, the premium is the highest in France and Italy, at 50 and 46 percent, respectively, while Germany, with 11 percent, is at the lower range of the spectrum, on par with Denmark, Finland, and Canada. The premium is the lowest in Scandinavian countries, with both Sweden and Norway below 1 percent. These results are in line with previous studies by Zingales (1994), Amoako-Adu (1995), and Doidge (2004). The average U.K. voting premium is somewhat higher than that found in the earlier studies (13 to 16 percent) because this paper uses more recent data and reflects a recent upward trend in the U.K. premium.

Table 6.

Voting Premium: Summary Statistics

(Sample average, 1992-2007)

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Voting premiums in the C3 countries significantly declined over the past 15 years (Figure 1). Germany, Italy, and France experienced dramatic drops in the voting premiums. Improvements in Italy are especially notable—from an clear outlier (voting premium above 100 percent) in the early 1990s to just above 20 percent level in 2007. While it is difficult to precisely time the effects of corporate governance reforms, at a first glance, the general downward trend in the C3 countries seems to be consistent with efforts in this area on both EU and national levels.

Figure 1.
Figure 1.

Dynamics of the Voting Premiums Across Countries, 1992–2007

(Annual averages)

Citation: IMF Working Papers 2008, 091; 10.5089/9781451869521.001.A001

Sources: Data Stream; and IMF staff calculations.

B. Have Reforms Reduced the Private Benefits of Control?

Turning to the econometric evidence, we find that corporate governance reform efforts have been associated with a decline in voting premiums. Taking into account reforms introduced at the national level in the C3 group and EU-wide initiatives, the most reform-heavy years are 1998 and 2001–05 (Figures 2 and 3). Panel data estimates, which control for firm-specific and country-specific effects, suggest that, on average, greater reform efforts are indeed associated with a substantial reduction in the voting premium in the following year as indicated by the larger negative (and statistically significantly larger) coefficients on dummy variables for 1998 and 2001–05 years (compared to the coefficients for the preceding and following years (Table 7)). In addition, the regression results imply that deeper reform effort is associated with longer lasting reduction in the voting premiums, as measured by coefficients on the two- and three-year lead of the voting premiums as a dependent variable (Table 8).

Figure 2.
Figure 2.

Reform Efforts: Number of Important Corporate Governance Reforms Per Year

Citation: IMF Working Papers 2008, 091; 10.5089/9781451869521.001.A001

Source: Enrique and Volpin (2007).
Figure 3.
Figure 3.

Number of National and EU Corporate Governance Reforms 1/

Citation: IMF Working Papers 2008, 091; 10.5089/9781451869521.001.A001

Sources: Enriques and Volpin (2007); Enriques and Gatti (2006); and IMF staff calculations.1/ EU refers to reforms introduced in all EU countries.
Table 7.

Voting Premiums: Year Effects

The results of the fixed-effect estimations explaining the one-year lead in the voting premium with with year dummies and country dummies, as in equation (2)

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Table 8.

Voting Premiums: Distributed Year Effects

The results of the fixed-effect estimations explaining the two- and three-year lead in the voting premium with with year dummies and country dummies, as in equation (2). Only results for reform-heavy years are shown.

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The estimation results also indicate that, in general, broad corporate governance reforms have been effective in reducing the private benefits of control in the C3 countries more than in the control groups (Tables 9 and 10). In particular, the coefficients on the interaction dummies between countries and years are generally significant and of the negative sign, indicating a larger reduction of voting premiums for the C3 countries. This is true for all years with significant reforms, with the exception of 1998 for Germany and France and 2001 for Germany, where coefficients are negative but not significant. Results for Italy are particularly impressive, with higher and significant coefficients for all “reform-heavy” years. At the same time, results for the EU control group are mostly insignificant, and the only significant coefficient for the non-EU control group, for 2006, is of positive sign, indicating an increase in the voting premiums. While these findings may be partially driven by the high initial voting premiums in Italy, and to a lesser extent, France, they do indicate that the extra reform effort pays off.

Table 9.

Relative Effectiveness of Reforms in C3 Compared to the EU and Non-EU Peers, by Year

The results of the fixed-effect estimations explaining the one-year lead in the voting premium with interaction dummies between country and year. EU control group includes Denmark, Finland, Sweden, and the UK, while non-EU control group includes Canada and Norway. Reported are the years with significant number of reforms. Estimation specification as in equation (3).

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Table 10.

Relative Effectiveness of Reforms Compared to Control Groups: A Summary

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To be sure, disentangling the effects of the EU-wide and national-level reforms is complicated and requires further research on the interaction effects between various reforms.15 However, the fact that the reduction in voting premiums has been the most pronounced in Germany, France, and Italy right after the years when the countries introduced significant reforms beyond and above the EU-wide initiatives suggests a positive payoff from the extra reform effort.

In addition, the results are robust to accounting for other reforms that could have reduced premiums. In particular, product market reforms (with the increase in competition that has followed the opening up of national European markets starting in 1992) might have reduced the rents that can be misappropriated by controlling shareholders, thereby reducing the premium. To account for this, the specifications (2) and (3) were also estimated including the index of product market reforms, as in Berger and Danninger (2006), for example. The results, presented in Tables 11 and 12 indicate that even after accounting for other reforms, voting premiums declined by more after the reform-heavy years, and the declines are more pronounced in the C3 countries as compared to control groups.16

Table 11.

Voting Premiums: Year Effects, Accounting for Product Market Reforms

The results of the fixed-effect estimations explaining the one-year lead in the voting premium with with year dummies, country dummies, and the idnex of product market reforms (PMR)

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Table 12.

Relative Effectiveness of Reforms in C3 Compared to the EU and Non-EU peers, Accounting for Product Market Reforms, by Year

The results of the fixed-effect estimations explaining the one-year lead in the voting premium with interaction dummies between country and year. EU control group includes Denmark, Finland, Sweden, and the UK, while non-EU control group includes Canada and Norway. Reported are the years with significant number of reforms. PMR is a product market reform index. Estimation specification is as in equation (3), with PMR included.

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Note: 2004–06 dropped due to collinearity.
Table 13.

Distribution Characteristics of Voting Premiums, Pooled for All EU Countries

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The analysis also suggests that the EU-wide reform efforts have been associated with a consistent downward trend in voting premiums within the Union. At the same time, voting premiums were flat and even edged up lately in the countries outside the Union included in the sample, namely Canada and Norway.

C. Have Reforms Brought About Convergence in Corporate Control?

Turning to the convergence question, we find that corporate control premiums have become increasingly compressed across countries. In particular, the standard deviation of the country voting premiums has an initial value of 0.43 in 1992, but it falls to 0.17 in 1998–99 from 0.22–0.26 in 1995–97 (Figure 4) The timing of the decline broadly coincides with the period of EU and national level reforms, suggesting that reform efforts may have contributed to the convergence in the value of corporate control across Europe.

Figure 4.
Figure 4.

Convergence in Voting Premiums Across Countries

(Standard deviation of country voting premiums)

Citation: IMF Working Papers 2008, 091; 10.5089/9781451869521.001.A001

The findings from pooling all firm-specific observations in a given year from the EU countries in the sample paint a similar picture. The evolution of the distribution of voting premiums in EU countries is presented in Figure 5. The parameters of the annual distributions are shown in Table 9. The results indicate that the distribution has become tighter (more compressed) over time, lending support to the notion that the private benefits of corporate control have converged, in tandem with the reform initiatives at the EU and national levels.

Figure 5.
Figure 5.

Distribution of Voting Premiums Across EU Countries, by Year

Citation: IMF Working Papers 2008, 091; 10.5089/9781451869521.001.A001

VI. Conclusions

This paper proposes a new approach to quantifying the effects of corporate governance reforms, by focusing on the dynamics of the voting premiums, a measure of the private benefits of control in a corporation. After constructing voting premiums based on financial market data, it assesses the impact of reforms on the value of control in nine industrialized countries and analyzes the effect of national reforms in three large European countries— France, Germany, and Italy—as compared to their EU and non-EU peers. The paper also investigates whether voting premiums have converged across countries and over time, in tandem with reform efforts.

The results indicate that the reforms have been successful in reducing the voting premiums EU-wide, and the results are especially strong in the C3 countries. For example, Italy witnessed a spectacular reduction in voting premiums over the past 15 years. Moreover, more intense and broader reform efforts (such as introducing national reforms beyond and above the EU-wide initiatives) bring higher and longer lasting benefits. The empirical findings also suggest that the market for corporate control in Europe has become more integrated, as illustrated by the lower dispersion in voting premiums across countries and over time.

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  • Zingales, L., 1994, “The Value of the Voting Right: A Study of the Milan Stock Exchange Experience,” Review of Financial Studies, Vol. 7, pp. 125–48.

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The authors would like to thank Helge Berger, Marcello Bianchi, Magda Bianco, James Daniel, Jörg Decressin, Gianni De Nicoló, Luca Enriques, Ben Hunt, Dora Iakova, and the seminar participants at the Bank of Italy and the IMF for useful comments; and Craig Dodge for helpful insights on constructing the data set. All remaining errors are our own.

1

In the words of Shleifer and Vishny (1997), “corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.”

2

Recent studies on this topic include Dittmar and Mahrt-Smith (2006), Bruno and Claessens (2006), Chhaochharia and Laeven (2007), and De Nicoló, et al (2007). A review of the literature is available in Becht, et al (2003) and Dennis and McConnell (2003), for example.

3

For example, see Gertler (2001) and Leyshon and Pollard (2000).

4

Control is defined as the ownership of a sufficient voting power to make decisions on company matters (Nenova, 2003).

5

See Jensen and Meckling (1976), Grossman and Hart (1988), Johnson, et al (2000), Lombardo and Pagano (2002), La Porta, et al (2002), Stulz (2005) on the theoretical side and Claessens, et al (1999), and La Porta, et al (2000) on the empirical side.

6

Such as Enron, Parmalat, and Cirio.

8

O’Sullivan (2003) and Vitols (2003).

9

See Nenova (2003) and Doidge (2004) for more details.

10

Spain is not included in the sample because, although dual-class share is allowed in Spain, none is covered in the Data Stream country lists. The U.S. dataset is under construction.

12

The use of the weekly Wednesday-to-Wednesday data is common in the finance literature to mitigate the Monday effect.

13

See Doidge (2004) for details.

14

Other factors that could affect the voting premium include differences in voting power, liquidity, and the firm size (Doidge, 2004 and references therein). Hence, our regressions include firm-specific fixed effects to proxy for these factors. In addition, firm-specific effects could capture changing nature of firms with dual class shares in the sample.

15

In addition, voting premiums might have been affected by global market developments. For example, the entrance of U.S. investment banks into continental Europe markets, together with U.S. and U.K. law firms, might have had an impact on how firms structure their transactions. Furthermore, the greater presence of large international institutional investors in the capital of European companies might deter private benefits extraction to some degree, by prompting issuers to adopt self-regulatory or even firm-level “reforms” of corporate governance practices.

16

Labor market reforms might also affect voting premiums, for example through changing firms’ dividend policies. However, data limitations did not allow us to incorporate indices of labor market reforms in the estimations. In fact, such indices are only available at discrete time points, such as end 1980s, end 1990s, and 2003, and many authors simply used interpolation techniques to obtain continuous time series (see, for example, Fiori, et al, 2008).

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Cover IMF Working Papers
Corporate Governance Reforms in the EU: Do They Matter and How?
Author:
Mr. Iryna V. Ivaschenko
and
Ms. Petya Koeva Brooks
Volume/Issue:
Volume 2008: Issue 091
Publisher:
International Monetary Fund
ISBN:
9781451869521
ISSN:
1018-5941
Pages:
29
DOI:
https://doi.org/10.5089/9781451869521.001
  • Figure 1.
    View in gallery
    Figure 1.

    Dynamics of the Voting Premiums Across Countries, 1992–2007

    (Annual averages)

  • Figure 2.
    View in gallery
    Figure 2.

    Reform Efforts: Number of Important Corporate Governance Reforms Per Year

  • Figure 3.
    View in gallery
    Figure 3.

    Number of National and EU Corporate Governance Reforms 1/

  • Figure 4.
    View in gallery
    Figure 4.

    Convergence in Voting Premiums Across Countries

    (Standard deviation of country voting premiums)

  • Figure 5.
    View in gallery
    Figure 5.

    Distribution of Voting Premiums Across EU Countries, by Year

Figure 1.

Dynamics of the Voting Premiums Across Countries, 1992–2007

(Annual averages)
Figure 2.

Reform Efforts: Number of Important Corporate Governance Reforms Per Year
Figure 3.

Number of National and EU Corporate Governance Reforms 1/
Figure 4.

Convergence in Voting Premiums Across Countries

(Standard deviation of country voting premiums)
Figure 5.

Distribution of Voting Premiums Across EU Countries, by Year