Abstract
This paper analyses how investor protection provided by the institutional setting in which a firm operates affects the quality of its board of directors. It also investigates whether firms operating in contexts with weaker investor protection rely more on internal corporate governance to prevent dysfunctional behaviour by insiders. This is achieved by the analysis of a matched pair sample of firms listed on the Italian and the UK stock markets. The results indicate that the board composition and structure are of higher quality in the UK. Our findings also suggest that the effectiveness of a boards' monitoring, measured by its ability to mitigate earnings management, is stronger in Italy. Thus, in a context where the institutional setting provides less investor protection, firm-level governance can substitute for the institutional deficit.
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