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The World Bank Research Observer Advance Access originally published online on February 23, 2006
The World Bank Research Observer 2006 21(1):91-122; doi:10.1093/wbro/lkj004
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

Corporate Governance and Development

Stijn Claessens

Stijn Claessens is professor of international finance policy at the University of Amsterdam, senior adviser to the Financial Sector Vice-Presidency of the World Bank, and a fellow of the Centre for Economic Policy Research; his e-mail address is sclaessens{at}worldbank.org.

The literature shows that good corporate governance generally pays—for firms, for markets, and for countries. It is associated with a lower cost of capital, higher returns on equity, greater efficiency, and more favorable treatment of all stakeholders, although the direction of causality is not always clear. The law and finance literature has documented the important role of institutions aimed at contractual and legal enforcement, including corporate governance, across countries. Using firm-level data, researchers have documented relationships between countries’ corporate governance frameworks on the one hand and performance, valuation, the cost of capital, and access to external financing on the other. Given the benefits of good corporate governance, firms and countries should voluntarily reform more. Resistance by entrenched owners and managers at the firm level and political economy factors at the level of markets and countries partly explain why they do not.


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