Emerging Markets Corporate Governance Research Network Newsletter, May 2013

May 5, 2013

In our 11th issue, you will once again find the latest research papers, articles, news and upcoming events. This issue features an interview with Prof. Prabirjit Sarkar, who argues that  there is no inherently better  legal system, and emerging countries should focus on the efficiency of their legal framework and curb corruption. In accordance with this interview, we feature an article on the modern civil discovery regime of American civil procedure and an empirical study on the links between governance and value in BRIKT countries. As always, we present stimulating reports, news and events. Last but not the least, the paper selection process for the 4th International Conference on Corporate Governance in Emerging Markets is almost complete. The tentative program is available at

CG Insights Series – Does English and American-Style Corporate Governance Translate to Emerging Markets?

Dr. Prabirjit Sarkar is head of the Economics Department at Jadavpur University in Kolkata and Visiting Fellow at the Centre for Business Research of the University of Cambridge in England. This is an abbreviated version, read the full interview here.

The most interesting piece on corporate governance I read recently was….

…A paper by Valentina Bruno and Stijn Claessens on the risks of over-regulating corporate governance. To put it in simple terms, my takeaway is that when companies themselves take the lead in strengthening their own corporate governance, it can lead to benefits. But when too many regulations are imposed on them from the outside - by the country’s legislative body - this over-regulation can increase the potential for negative business impacts.

Right now, I am working on…

… A study of countries based on their legal systems, their adherence to the rule of law relative to corporate governance, and the economic performance of their public companies.  I am working with a team of lawyers, and we are looking at this in 25 countries across 35 years, from 1970 to 2005. So far, the evidence seems to suggest that it’s not the actual legal system itself that is the differentiator. Instead, it is the efficiency of the legal system and adherence to its rules that’s more important.

Our view is that no one system is inherently better than another. Developing countries in particular should focus more on making sure that the legal framework they currently have in place is functioning well. They should be paying more attention to issues such as corruption than whether or not they have enough corporate governance regulation on the books. Read more...

I think the most relevant CG research topic for emerging markets now is…

…Whether increased alignment of legal and regulatory systems among nations improves corporate governance and company performance. We are seeing a trend toward legal globalization in the developed world. And we are seeing that developing countries are changing their laws so they are more consistent with the Anglo-Saxon approach, because they think uniformity is better. A deeper look at whether this has helped and if so, how and why it has helped will be important information for emerging market countries going forward.

Data from my earlier research suggest that we shouldn’t be imposing the Anglo-Saxon approach to corporate governance on developing countries, because it might not work. For example, there appeared to be no relationship at all to the changes in India’s corporate governance-related regulations made during the mid -1990s and stock market performance. The bottom line here is that the system needs to account for the uniqueness of individual country contexts.

Read the full interview here


Main News

Biannual International Conference Series on Corporate Governance in Emerging Markets started in 2007 in Istanbul and followed by Sao Paolo in 2009 and Seoul in 2011. The 4th International Conference on Corporate Governance in Emerging Markets will be held in Hyderabad in August 23-24, 2013, and hosted by India School of Business in cooperation with Indira Gandhi Institute of Development Research. Approximately 200 papers were submitted and 26 have been accepted. The conference will feature two keynote speakers: Dr. Steve Lydenberg (Partner Domini Social Investments LLC) and Professor Viral V. Acharya (C.V. Starr Professor of Economics, New York University Stern School of Business). Please visit the conference website for registration details and the program.


Methods for Multicountry Studies of Corporate Governance (and Evidence from the BRIKT Countries)
Bernard S. Black, Antonio Gledson De Carvalho, Vikramaditya Khanna, Woochan Kim, and B. Burcin Yurtoglu
Corporate governance indices are imperfect measures of firm's governance attributes, and what matters in governance often depends on local norms and institutions. To tackle these and more empirical issues the authors generate country-specific governance indices for Brazil, Korea, India, Russia and Turkey. As opposed to a common index, these country specific indices do predict higher firm market value, both in each country and when pooled across countries.  

Litigation Discovery and Corporate Governance: The Missing Story about the 'Genius of American Corporate Law'
Érica Gorga and Michael Halberstam
Gorga and Halberstam argue that modern civil discovery regime of American civil procedure has a profound impact on the evolution of corporate governance and the culture of corporate disclosures in the United States. The authors show how litigation discovery derives litigation and it stimulates the development of case law defining shareholder rights and managerial duties. Highly developed, continuously evolving discovery practices have established templates for independent corporate internal investigations by boards and regulators, and discovery has given regulators steady insight into changing corporate internal practices and patterns of wrongdoing to which regulators have responded with broad legal and regulatory changes. As a policy implication, Gorga and Halberstam caution against legal transplants of U.S. style securities disclosure, aggregate litigation mechanisms, and other enforcement mechanisms, without considering appropriate tools for investigating corporate internal wrongdoing ex post.

The Effect of Mandatory CSR Disclosure on Information Asymmetry: Evidence from a Quasi-natural Experiment in China
Mingyi Hung, Jing Shi, and Yongxiang Wang
Endogeneity concerns in corporate finance research are occasionally resolved by natural experiments. Hung, Shi and Wang use a quasi-natural experiment that mandates a subset of listed Chinese firms to issue corporate social responsibility (CSR) reports. Contrary to the view that mandatory CSR disclosure lacks credibility and relevance in emerging markets, they find that mandatory CSR reporting firms experience a decrease in information asymmetry subsequent to the mandate. This relation is more pronounced for firms with greater political/social risk and firms with less analyst coverage.

Corporate Governance, Agency Problems, and Firm Performance: Empirical Evidence from an Emerging European Market
Andreas Charitou and Christodoulos Louca
Charitou and Louca consider the case of Cyprus to investigate whether the relation between corporate governance and firm performance varies with different types of agency problems. They find a relation between governance and performance, primarily for firms more prone to Type I agency problems than to Type II agency problems. Type I agency problems may arise from the separation of ownership and management, and Type II are due to from conflicts of interest between controlling and non-controlling shareholders. Overall, they argue that in Cyrus governance effectiveness is a function of the type of agency problem.

State-controlled “National Champions” of the Russian Banking Market: Concentration, Competitiveness, and Efficiency
Andrei Vernikov
Vernikov investigates the state-controlled banks in Russia and considers their market concentration, competitiveness and average bank efficiency. He argues that main segments of the Russian banking market have crossed the threshold of high concentration, whereas household deposits market has almost become a monopoly situation. The policy implication of his findings is that a genuine privatization of “national champions” is probably not a good idea because a private oligopoly to emerge in their place will be more costly.

Dominating Shareholders in Indian Organizations – their relevance for Corporate Governance and Firm Performance
Santosh Pande, and Valeed Ansari
Central challenge in corporate governance in India is disciplining the dominant shareholder and protecting the minority shareholders. Differences in the nature of dominant shareholder (i.e. government owned, Indian group, family group etc.) result in significant differences in firms’ governance characteristics, but other governance parameters don’t seem to effect firm performance.


Opinion and Commentary

Are Chinese State Owned Enterprises a Threat To U.S. Companies?
Colin Mayer
Prof. Mayer of Saïd Business School, University of Oxford, comments on the Chinese state owned enterprises (SOEs). The reforms over the last decade shed some light into the strong performance of the SOEs. But, “will this continue or is there a similar type of inherent contradiction in the structure which will lead it to go the same way as the Japanese model?” Prof. Mayer explains how the SOEs need to adapt their structures and address certain deficiencies if they want to pose a continuing threat to the competitive position of U.S. corporations.

Business Ethics in Emerging Markets and Investors’ Expectations Standards
George Dallas
Dallas summarizes his views on anti corruption standards in different jurisdictions, particularly in emerging markets. “Given the vast opportunities for growth, economic development and long-term returns for investors in these [emerging] markets, the stakes are high. This requires a strong, and consistent, message by investors that high business ethics standards should consistently apply to emerging markets as much as they do in the more developed markets - as well as a pragmatic understanding of the challenges faced and the strategies that may have the greatest impact.”

Do Social Ties Matter In Corporate Governance? The Missing Factor in Chinese Corporate Governance Reform
Yu-Hsin Lin
This article analyzes how social ties of independent directors to corporate insiders impact director efficiency. Lin urges policy-makers to rethink current definition of "independence" and the effect of independent directors' social ties to controlling shareholders or corporate insiders. “Social ties, on the one hand, can serve as an effective source of information for independent directors, who in turn can be more effective in providing advice to the management. On the other hand, social ties can be detrimental to independent directors' monitoring capabilities. All countries that transplant independent directors should be aware that the institution of independent directors will most likely lose its core value to the firm if there is no legal control over social ties.”



The OECD Principles of Corporate Governance in Emerging Markets: A successful example of networked governance?
Mathias M. Siems and Oscar Alvarez-Macotela
This chapter discusses and evaluates the success of the OECD Principles of Corporate Governance. The analysis presents mixed results. Recent events point towards skepticism of whether adoption of the Principles can be seen as an effective way to prevent future financial crises.

SEBI’s Consultative Paper on Review of Corporate Governance Norms in India: Comments and Suggestions
Umakanth Varottil
Varottil comments on Securities and Exchange Board of India (SEBI)’s review of corporate governance norms released on January 4, 2013. The first part of the article contains a response to the more specific proposals contained in SEBI’s consultative paper. The second part contains a discussion of some of the broader concerns pertaining to corporate governance in India, and sets out some issues that have not been adequately addressed in the current round of reforms.


Events and Calls for Papers

Global Public Policy Committee will host a conference "ASEAN Capital Markets, The Importance of a Strong Financial Reporting Environment" on May 7, 2013 in Singapore.

Innovation in Emerging Economies: Collaboration Opportunities with New Global Partners. Two-day meeting for senior executives on June 12–13, 2013 in Istanbul, Turkey is by invitation only. Senior executives from Turkey’s top companies, governmental agencies and universities will be in attendance, including group dining and networking opportunities. In addition there will be time during the two days in Istanbul for attendees to discuss their insights and how to apply them in their own businesses. To enquire about criteria for participation, contact

Fourth Annual Workshop on Research Design for Causal Inference will be held on June 24-28, 2013 at Northwestern Law School, Chicago,Illinois, USA.

The Millstein Governance Forum "Corporate Governance in the New 'Normal': The Impact of New Patterns of Corporate Ownership," will take place on June 24-25, 2013 at Columbia University in New York City, USA.

2013 International Corporate Governance Network (ICGN) Annual Conference will be held on June 26-28, 2013 in New York City, USA.


From Our Coordinator

We encourage all of our members to notify us regarding their ongoing research or the events or conferences they want to share with the Network. We also welcome other relevant information and your feedback. Please contact: Mehmet Canayaz at

Melsa Ararat, EMCGN Coordinator   

May 2013

The Emerging Markets Corporate Governance Research Network is supported by IFC's Global Corporate Governance Forum, the leading knowledge and capacity building platform dedicated to corporate governance reform in emerging markets and developing countries. The Forum is a multi-donor trust fund facility located within the IFC Corporate Governance Group, co-founded in 1999 by the World Bank and the Organisation for Economic Co-operation and Development (OECD). For more information about the Forum's activities and publications, visit its website For more information about the EMCGN's activities, go to or contact