Corporate Governance and International Trade Shocks
Speaker
Abstract
| We study how the quality of corporate governance affects firms’ reaction to changes in the competitive environment. Our identification strategy relies on exogenous variations in both corporate governance and product market competition experienced by U.S. firms in the late 1980s. While the Canada-U.S. Free Trade Agreement of 1989 increased foreign competition, the business combination laws, passed between 1985 and 1991 in thirty U.S. states, weakened corporate governance for firms incorporated in those states. We find that the operating and stock market returns of firms with worse corporate governance were more negatively affected by the increase in competitive pressures. We also find that worse corporate governance impaired the ability of exporters to benefit from the reduction in export tariffs to Canada. These differences in performance are related to the lower financial constraints of well-governed firms. |
| Contact information: |
| Myra Lissenberg |
