Cover: Can Economic Openness Inspire Better Corporate Governance?

Can Economic Openness Inspire Better Corporate Governance?

An Exploration of the Link between Openness and Corporate Governance based on the Asian Experience

Published Apr 29, 2013

by Lisa Klautzer

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This dissertation explores the link between economic openness and companies' corporate governance practices in developing countries. It establishes a conceptual framework where it considered the factors playing into the cost-benefit analysis of a company when deciding on corporate governance practices and how economic openness influences this. Drawing on data from eleven Asian countries, it then empirically tests the hypothesis that economic openness can stimulate the adoption of better corporate governance practices. It focuses on Asian countries because their accelerated economic growth in the last decades has led the way in catching up with developed countries and at the same time the region displays variation in both economic openness and firms' corporate governance practices. The results indicate a positive and statistically significant impact of economic openness on corporate governance: On average, companies in economically more open countries adopt more transparent reporting on corporate governance issues in their annual reports. These results hold when instrumenting economic openness to avoid biased results due to endogeneity between corporate governance and economic openness. From a policy perspective, these findings suggest a more market-driven approach to improving corporate governance, which may be a good alternative or complement to regulatory efforts.

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This document was submitted as a dissertation in March 2013 in partial fulfillment of the requirements of the doctoral degree in public policy analysis at the Pardee RAND Graduate School. The faculty committee that supervised and approved the dissertation consisted of Krishna B. Kumar (Chair), Edward G. Keating, and Michael D. Greenberg.

This publication is part of the RAND dissertation series. Pardee RAND dissertations are produced by graduate fellows of the Pardee RAND Graduate School, the world's leading producer of Ph.D.'s in policy analysis. The dissertations are supervised, reviewed, and approved by a Pardee RAND faculty committee overseeing each dissertation.

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