High-quality Governance Research Articles

When Guardians Matter Most: Exploring the Conditions Under Which Electoral Management Body Institutional Design Affects Election Integrity

Problems with election fraud and election integrity are of increasing interest in both established and transitional democracies. In many transitional democracies, independent electoral management bodies (EMBs) have been championed as a key institutional reform measure to successfully strengthen election integrity. However, empirical findings regarding the impact of EMB institutional design on election integrity are mixed. While regional studies have found a positive impact of independent EMBs on election integrity in Latin America and Africa, global comparative studies appear to show that EMB institutional design is either negatively, or only very weakly related to election integrity. In this paper, we examine the effects of EMB institutional design on election integrity using the new Varieties of Democracy dataset and data from the International IDEA. We find that the mixed findings on EMB institutional design are due to the differences between transitional and established democracies on the one hand, and regimes with low and high quality of government on the other. The paper concludes with a reflection on results and a discussion of implications of these findings for the debate on electoral reform in Ireland.

The wealth of regions: quality of government and SMEs in 172 European regions

With this paper we put forward a novel theoretical argument that the individual’s subjective evaluations of the quality of government (QoG) in terms of its impartiality influences his or her complex assessments of the opportunity and feasibility of a business venture, and calculations on expected long-term utility from business venturing. This in turn affects his or her decision to engage in legal business venturing or not. We hypothesize that high QoG is linked with higher rates of small and medium-sized enterprises (SMEs) in a polity and a more even pattern of their territorial dispersion. Using original survey data on QoG from 172 regions in eighteen European Union countries, we find that regions where governments are perceived by their citizens as impartial and free from corruption have on average significantly more SMEs. We also find that in less corrupt countries the spatial distribution of SMEs is more even than in more corrupt countries.

Quality of government and factors configured as conditions for successful peace building in post-conflict countries - A crisp-set qualitative comparative analysis

This study investigates how particular configurations of conditions successfully resulted in peace building for 22 post-conflict countries during the period of 1965-1997. In particular, the paper focuses on whether democratic accountability, GDP per capita, intervention of UN PKO, and quality of government are important conditions that are associated with the successful peace building two to five years after the civil war, for post-conflict countries. Using the crisp-set analysis, this paper examines how the combination of these four conditions contributed to the successful peace building. The results suggests that a high quality government with the absence of UN PKO’s intervention two years after the war, and a high quality of government in combination with both high level of democratic accountability and high level of GDP per capita five years after the war, both attribute to the successful peace building. This paper highlights not only the importance of a good quality government but its configuration to the other three conditions that allows for successful peace building.

Regional environmental performance and governance quality: a nonparametric analysis

This paper applies nonparametric estimators to examine the effect of regional quality of government on the environmental performance in the NUTS 1 regions in France, Germany, and the UK. A novel measure on governance is used, gauging the partiality, corruption and effectiveness of government services in each region. By utilizing regional-level measures of three pollutants (CO2, CH4 and N2O), the effect of governance on environmental efficiency is analyzed. The empirical analysis suggests that there is a nonlinear relationship between regions’ governance quality levels and their environmental performance. It appears that the effect of regional quality of governance is positive up to a certain level, then turning slightly negative. This suggests that higher governance quality will not always result in increased environmental efficiency.

The Politics of Polarization: Governance and Party System Change in Latin America, 1990-2010

The Politics of Polarization: Governance and Party System Change in Latin America, 1990-2010

Macroeconomic evidence on the impact of mandatory IFRS adoption on equity and debt markets

This study investigates whether mandatory IFRS adoption is associated with increased foreign portfolio investment into the adopting country’s debt and equity markets. Using macroeconomic data and a pre–post design centered in 2005, we find that IFRS adoption has a significantly greater effect on foreign debt than on foreign equity investment flows. This result is consistent with the notion that debt investors are greater consumers of financial statement information. We find that the increase in foreign equity investment around IFRS adoption is limited to countries that had higher governance quality, economic development, and creditor rights prior to adoption.In contrast, the increase in foreign debt investment around IFRS adoption is significant for all adopting countries independent of these characteristics.Finally, we find that the increase in foreign equity investment derives primarily from the U.S., whereas the increase in foreign debt investment derives from the U.S. and other non-adopting countries. The evidence that increases in foreign investment originate from non-adopting countries rather than other adopting countries suggests that the benefits from mandatory IFRS adoption more likely reflect improved financial reporting quality rather than greater financial statement comparability.

The Chinese Paradox of High Growth and Low Quality of Government: The Cadre Organization Meets Max Weber

Much research has argued for the importance of state's administrative capacity for development. Disregard for the rule of law and failure to get corruption under control are seen as detrimental to economic and social development. The China paradox refers to the fact that in all commonly used measures of levels of corruption and the quality of government, China is a country that scores quite low. China also lacks the Weberian model of bureaucracy that is seen as central for development. It is argued that this paradox is the result of disregarding the existence of a different public administration model in China—the cadre organization. Instead of rule following, this organization is marked by high commitment to a specific policy doctrine. The argument is that while very different from Weberian bureaucracy, this organization is well suited for effectively implementing policies for economic and social development.

Policy Approaches Towards Undeclared Work: A Conceptual Framework

Policy Approaches Towards Undeclared Work: A Conceptual Framework

The influences of governance quality on equity-based entry mode choice: The strengthening role of family control

This study examines the possible heterogeneity of governance quality's influence on entry mode decisions made by firms with different degrees of family control. When entering a country with low governance quality, ceding control of the subsidiary in exchange for local partners’ help enables foreign firms to tackle institutional flaws. However, such a motivation diminishes as governance quality increases. This study thus hypothesizes that firms tend to choose WOSs over JVs when entering a host country with high governance quality.Firms controlled by family members, due to concerns regarding the preservation of socioemotional wealth, prefer to maintain high ownership levels of their affiliates. This study thus hypothesizes that firms with a higher degree of family control are even more likely to choose WOSs when entering a country with high governance quality. The results support the hypotheses.

Is Good Governance a Driver of Family Firm Performance?

In an economic context characterized by instability, corporate governance is a real challenge to the current managerial era. Indeed, many financial scandals have recently erupted, encouraging the establishment of high quality governance practices in order to obtain stakeholders’ confidence through effective communication and transparency. However, family firms present specific organizational structures with intrinsic characteristics and a particular mode of operation. Due to these characteristics, family firms exhibit specific governance practices which can affect performance. This paper investigates the relationship between governance structures and family firms’ performance so as to determine if governance is a driver of value creation or a mechanism enabling family businesses to retain stakeholders’ confidence. Using a governance score, our results show that family governance practices are negatively linked with firm’s performance while classic governance practices do not play a significant role. It suggests that the implementation of formal family governance mechanisms creates a superfluous cost that hampers performance. Our findings also demonstrate that family firms with the lowest levels of performance display the higher governance scores, thus suggesting that family firms try to improve the image perceived by stakeholders. These results seem to confirm the convergence between economic and socioemotional objectives when the continuity of the organization is in danger.

Bypass or Engage? Explaining Donor Delivery Tactics in Foreign Aid Allocation*

The conventional wisdom in the literature on aid allocation suggests that donors utilize bilateral aid as a tool to buy influence in the aid-receiving country. Those who conclude that aid is driven by donor self-interest focus on government-to-government aid transfers. However, this approach overlooks important variation in delivery tactics: Bilateral donors frequently provide aid to nonstate actors. This paper argues that donors resort to delivery tactics that increase the likelihood of aid achieving its intended outcome. In poorly governed recipient countries, donors bypass recipient governments and deliver more aid through nonstate actors, all else equal. In recipient countries with higher governance quality, donors engage the government and give more aid through the government-to-government channel. Using OLS and Probit regressions, I find empirical support for this argument. Understanding the determinants of donor delivery tactics has important implications for assessing aid effectiveness.

Does corporate governance influence convertible bond issuance?

We examine the influence of corporate governance quality on firms' choice between convertible debt, straight debt, and equity using a Western European sample of security offerings made between 2000 and 2010. We find that weaker firm-specific and country-specific corporate governance quality increases firms' likelihood of issuing convertible debt instead of straight debt and common equity. We also find that stockholder reactions to convertible debt announcements are more favorable for firms with weaker corporate governance. Our results suggest that corporate governance quality is a significant security choice determinant, with firms using convertible debt as a substitute for high quality governance mechanisms.

Why Do Some Regions in Europe Have a Higher Quality of Government?

While most of the quantitative literature on quality of government has focused on national differences, subnational variation has been neglected, mainly due to the lack of data. This study explores subnational divergences in quality of government (understood as control of corruption, impartial treatment of citizens, and government effectiveness) using newly created subnational data including over 70 European regions. It addresses the institutional puzzle of why regions which share so many formal institutions (e.g., Northern and Southern Italy) do diverge so much in quality of government. Similar to recent political economy scholarship, our theory points to historical path dependencies. The study argues that a major factor explaining regional path dependencies is the consolidation of clientelistic networks in those regions where rulers have historically (seventeenth to nineteenth centuries) less constraints to their decisions.

What is Governance?

This paper points to the poor state of empirical measures of the quality of states, that is, executive branches and their bureaucracies. Much of the problem is conceptual, since there is very little agreement on what constitutes high-quality government. The paper suggests four approaches: (1) procedural measures, such as the Weberian criteria of bureaucratic modernity; (2) capacity measures, which include both resources and degree of professionalization; (3) output measures; and (4) measures of bureaucratic autonomy. The paper rejects output measures, and suggests a two-dimensional framework of using capacity and autonomy as a measure of executive branch quality. This framework explains the conundrum of why low-income countries are advised to reduce bureaucratic autonomy while high-income ones seek to increase it.

Foreign Institutional Investment: Is Governance Quality at Home Important?

This paper examines the investment preferences of foreign institutional investors investing in the U.S. market. We analyse both firm and country-level determinants that influence the foreign institutional investors’ allocation choices. At the country level, we find that the governance quality in a foreign institutional investor’s home country is a determinant of their decision to invest in the U.S. market. Our findings indicate that investors who come from countries with governance setups similar to that of the U.S. invest more in the United States. The investment levels though, are more pronounced for countries with governance setups just below that of the U.S. Our results are consistent with both the ‘flight to quality’ and ‘familiarity’ arguments, and help reconcile prior contradictory empirical evidence. At the firm level, we present unequivocal evidence in favour of the familiarity argument. Foreign institutional investors domiciled in countries with high governance quality prefer to invest in U.S. firms with high corporate governance quality. This effect is primarily driven by grey (non-monitoring) institutional investors.

Dimensions of influence in nonprofit leadership coalitions: Contingencies for governance quality

We explore the relatedness between different types of governance coalitions and the level of organizational governance quality. We propose two dimensions of influence to classify nonprofit governance coalitions. We apply a mixed methodology, including a comparative case analysis of five organizations and a multi-level regression analysis of coalition metrics on formal positions held by individuals. Based on our observations we formulate eight theoretical propositions, which stress for high quality governance practices the importance of a ‘balance coalition’ between diffused and centralized influences, and between specific and holistic influences. Further, we conjecture the important role of formal leadership positions, such as CEOs and chairmen, in the structure of governance coalitions. Finally, several research paths to scrutinize our propositions in further research are suggested.

Financial freedom and bank efficiency: Evidence from the European Union

This paper investigates the dynamics between the financial freedom counterparts of the economic freedom index drawn from the Heritage Foundation database and bank efficiency levels. We rely on a large sample of commercial banks operating in the 27 European Union member states over the 2000s. After estimating bank-specific efficiency scores using Data Envelopment Analysis (DEA), we develop a truncated regression model combined with bootstrapped confidence intervals to test our main hypotheses. Results suggest that the higher the degree of an economy’s financial freedom, the higher the benefits for banks in terms of cost advantages and overall efficiency. Our results also show that the effects of financial freedom on bank efficiency tend to be more pronounced in countries with freer political systems in which governments formulate and implement sound policies and higher quality governance.

Can strong home country institutions foster the internationalization of MNEs?

PurposeWhile many studies on institutional environment have primarily focused on the influence of the host country environment, limited insights have been offered on how the different dimensions of home institutions affect firm internationalization. This paper aims to fill this gap by investigating the effects of regulatory institutions at home.Design/methodology/approachUsing country governance quality to proxy quality of regulatory institutions, this study attempts to reveal how regulatory institutions at home facilitate a multinational enterprise's (MNE's) international expansion and why the influence differs in different country clusters. Using hierarchical linear modeling and cluster analysis, proposed hypotheses were tested with a three‐year panel of 511 firms from 38 countries.FindingsThe results provide substantial support for the authors' hypotheses that MNEs with high governance quality at home are more engaged in internationalization than those with low governance quality at home. Moreover, differences in institutional effect do exist between country clusters.Practical implicationsThis study provides evidence that while country differences exist, governance quality at home can facilitate MNEs' expansion into foreign markets. This finding will help managers of any MNEs to consider country‐level factors and evaluate the governance quality at home before committing resources into foreign operations.Originality/valueBuilding on the institutional environment literature, this theory and results make original contributions by underscoring how the consideration of regulatory institutions at home can significantly improve understanding of institutional influence on MNEs. The findings have important implications for both international business researchers and managers of MNEs.

Foreign institutional investment: Is governance quality at home important?

This paper examines the investment preferences of foreign institutional investors investing in the U.S. market. We analyse both firm and country-level determinants that influence the foreign institutional investors' allocation choices. At the country level, we find that the governance quality in a foreign institutional investor's home country is a determinant of their decision to invest in the U.S. market. Our findings indicate that investors who come from countries with governance setups similar to that of the U.S. invest more in the United States. The investment levels though, are more pronounced for countries with governance setups just below that of the U.S. Our results are consistent with both the ‘flight to quality’ and ‘familiarity’ arguments, and help reconcile prior contradictory empirical evidence. At the firm level, we present unequivocal evidence in favour of the familiarity argument. Foreign institutional investors domiciled in countries with high governance quality prefer to invest in U.S. firms with high corporate governance quality. This effect is primarily driven by grey (non-monitoring) institutional investors.

Optimal Contracts with Performance Manipulation

We study optimal compensation contracts that (i) are designed to address a joint moral hazard and adverse selection problem and that (ii) are based on performance measures which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager. Our model predicts that (i) the optimal compensation contract is convex in reported earnings;(ii) the optimal contract is less sensitive to reported earnings than it would be absent the manager's ability to manipulate earnings; and (iii) higher costs of manipulating reported earnings (e.g., due to higher governance quality) are associated with higher firm value, lower expected level of earnings management and higher output.