CORPORATE GOVERNANCE, CAPITAL MARKET DISCIPLINE AND THE RETURNS ON INVESTMENT

Klaus Gugler
Dennis C. Mueller
B. Burçin Yurtoğlu

We analyze the impact of corporate governance institutions, ownership structures and external capital market constraints on company returns on investment by using a sample of more than 19,000 companies from 61 countries across the world. We show that (1) of these three sets of institutions, the origin of a country's legal system proves to be the most important. Companies in countries with English-origin legal systems earn returns on investment that are at least as large as their costs of capital. (2) Differences in investment performance related to a country's legal system dominate differences related to ownership structure. (3) Strong external capital markets improve the investment performance of companies.