Abstract
Building upon institutional theory, this study investigates whether and how market enforcement mediates the relationship between external (country-level) and internal (firm-level) corporate governance mechanisms. We focus on two countries with contrasting legal, regulatory and institutional regimes: Canada and France. Market enforcement is proxied by two measures of market efficiency: abnormal returns and price volatility. Our results suggest that external governance mechanisms interact with internal governance mechanisms via market enforcement, which differs greatly between both countries. Hence, the complementarity of internal and external governance mechanisms depends upon the nature and type of enforcement (i.e., emphasis on ex-ante monitoring and compliance vs. ex post sanctions).
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