دموکراسی، حاکمیت قانون، و حکومت شرکتی – چشم انداز نقدینگی Democracy, rule of law, and corporate governance—a liquidity perspective

1 Introduction Numerous studies have explored how to improve corporate governance effectively. Although improving governance mechanisms at the firm level is imperative to mitigating agency problems within the firm, improving the governance mechanism at the national level first can be more effective and efficient in achieving the goal of enhancing corporate governance. Intuitively, large settings, such as nations, state laws and institutions, are more likely to affect smaller counterparts, such as firms and their governance mechanisms, instead of the other way around. This is because all the units inside the former cannot be isolated from their external environments. In fact, laws that deal with investor protection, such as securities, bankruptcy and company laws, serve as the foundation for corporate governance (La Porta et al. 1997, 1998). Existing studies have also empirically shown that country-specific variables such as institutional and legal environments prevailing in a given country have an overriding effect on organizational activities such as corporate governance in that country (La Porta et al. 1998, 1999, 2000b, 2006; Edwards and Fischer 1994; Gorton and Schmid 2000; Kuipers et al. 2009; de Tocqueville 2000; Licht et al. 2005; Doidge et al. 2007; Mijiyawa 2013). Given the established effect of institutional and legal environment on corporate governance as well as the worldwide thrust for democratic development, whether and how other country-level variables such as democracy and rule of law also influence corporate governance is worthy of investigation. This is mainly due to the emergence of public awareness concerning corporate governance, especially after the recent global financial crisis. Surprisingly, this research question has remained unexplored. It is for this reason that the study is conducted. Essentially, democracy and corporate governance both aim to mitigate agency problems and reduce agency costs at the national and firm levels, respectively. More specifically, democracy is a political system, in which a governor (i.e., agent) is elected to run a country on behalf of and for the benefits of national citizens (i.e., principals). Similarly, corporate governance is a mechanism in which a manager (i.e., agent) is appointed to run a company to minimize the conflict of interests between the management and the shareholders (i.e., principals) as well as to maximize the value of shareholders. A higher level of democracy corresponds to a greater probability that national citizens can benefit from the country they reside in. In the same manner, corporate governance with better quality implies a greater possibility that shareholders can benefit from the firm they invest in.