Is Corporate Governance Relevant During the Financial Crisis? Cross-Country Evidence

Abstract

We study the impact of internal corporate governance on performance during the current financial crisis using a comprehensive cross-country sample of 4046 publicly traded non-financial firms from 23 countries. Using a broad-based index of corporate governance quality, we find that well-governed firms do not outperform poorly governed firms. We explore two plausible explanations for the lack of significant impact of corporate governance quality on performance. First, we examine whether cross-country differences in institutional development have an impact on the effect of corporate governance on performance. Second, we investigate whether a narrowing down of the informationally efficient segment of the market during the crisis can explain the results. We do not find support for either of these conjectures. Our work suggests that existing corporate governance arrangements do not go far enough in mitigating steep declines in performance during the global financial crisis.