Global Corporate Governance Forum Corporate Governance and Development Stijn

This paper investigates the relationship between corporate governance and economic development and well-being. It finds that better corporate frameworks benefit firms through greater access to financing, lower cost of capital, better firm performance, and more favorable treatment of all stakeholders. Numerous studies agree that these channels operate not only at the level of the firms, but in sectors and countries as well—although causality is not always clear. There is also evidence that when a country’s overall corporate governance and property rights system are weak, voluntary and market corporate governance mechanisms have limited effectiveness. Less evidence is available on the direct links between corporate governance and poverty. There are also some specific corporate governance issues in various regions and countries that have not yet been analyzed in detail. In particular, the special corporate governance issues of banks, family-owned firms, and state-owned firms are not well understood, nor are the nature and of determinants of enforcement. Importantly, the dynamic aspects of corporate governance—that is, how corporate governance regimes change over time—have only recently received attention. This paper concludes by identifying some main policy and research issues that require further study. Corporate governance, a phrase that not long ago meant little to all but a handful of scholars and shareholders, has now become a mainstream concern—a staple of discussion in corporate boardrooms, academic meetings, and policy circles around the globe. Two events are responsible for the heightened interest in corporate governance. During the wave of financial crises in 1998 in Russia, Asia, and Brazil, the behavior of the corporate sector affected entire economies, and 1 Corporate Governance and Development Presented at the Global Corporate Governance Forum Donors Meeting, held in the Hague, The Netherlands, March 13, 2003. I would like to thank the participants for their useful comments. I would also like to thank Florencio Lopez de Silanes for useful suggestions. 17506_GCGF 10/15/03 9:49 AM Page 1