Determinants of Corporate Governance Codes

Abstract: Corporate governance codes are an increasingly prominent feature of the regulatory landscape in many countries, yet remarkably little is known about the determinants of corporate governance reform. Potential determinants include: (1) the diffusion of an international benchmark model of good governance; (2) a country’s legal system; (3) the desire to attract foreign investors; and (4) the influence of interest groups. I construct a proxy for the investor-friendliness of 52 corporate governance codes of different jurisdictions and collect data on the code issuers. I find strong evidence that the drafters of codes emulate international benchmark models and that jurisdictions belonging to different legal traditions use different regulatory strategies, some evidence that portfolio equity inflows are associated with the investor-friendliness of codes, and no evidence that interest groups succeed in affecting rules. The article suggests a method for the modeling of legal evolution, convergence, and the political economy of corporate governance codes.