Corporate Governance Structures, Legal Origin and Firm Performance

Abstract: There is by now a vast literature on how institutional environments affect corporate investments. Much of this literature centres on corporate governance structures and the broader legal environment in which firms operate. This paper conducts a comparative analysis of three countries with on the surface similar ownership structures but different legal origin. The three countries in the study are Sweden, Taiwan and Hong Kong. These countries are known for strong family ownership but have different legal origins; Scandinavian, German and English, respectively. The paper describes the corporate governance structures in each respective country. Also, since Chinese informal institutions are typically strong and can potentially exert an influence on the actions of managers, these are explained. The comparative analysis is based on an assessment of the countries’ investment performance by means of a marginal q approach. Differences in their performance are interpreted in view of the legal origin hypothesis. Furthermore, investments are decomposed such that returns on different sources of funds can be estimated.