DOES A COUNTRY’S FINANCIAL AND LEGAL SYSTEMS CONTEMPORANEOUSLY IMPACT THE GOVERNANCE AND PERFORMANCE RELATIONSHIP: FURTHER EVIDENCE?

We investigate the impact of continuous measures of the financial system and investor protection on the corporate governance-performance relationship. We find that shareholder suits rights/stock market capitalization (disclosure rights/stock market capitalization) has monotonic (non-monotonic) relation with firm performance and that high-levels of stock market capitalization and investor protection generate valuation synergies. Besides interactions of financial and legal systems with corporate governance, market- (bank-) orientation and development and stronger (weaker) investor protection along with better (worse) corporate governance are associated with higher (lower) valuations. A country’s migration to a developed stock market with enhanced investor protection is related to better corporate governance and firm performance.