Convergence and divergence in corporate governance of emerging and developed market economies

What is it about?

We explore factors of convergence and divergence in corporate governance of emerging and developed market economies, focussing on the role of firm internationalisation. In particular, foreign investments by emerging economy firms led to upgrade of their governance capabilities. These firms also became advocates for home-country policy reforms that mandated the development of similar capabilities for local firms.

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Why is it important?

We have witnessed widespread changes in national corporate governance systems (CGSs) across the world, and particularly across the emerging economies in the last 30 years. How have the competitive strategies of firms, particularly multinational ones, been both a factor in these changes and influenced by them? Since the fall of the Berlin Wall, global policies promoting the liberalization of trade and investment have prompted demands from multinational enterprises (MNEs) for the modernization and standardization of national corporate governance (CG). India and China illustrate these complex trends. In 1995 India joined the World Trade Organization followed by China in 2001. Both countries pledged adherence to new global standards protecting foreign trade and investment transactions. Subsequently, firms in both countries became substantial foreign direct investors and issued new cross-listings of tradeable securities on the foreign share markets. MNEs from both countries established new international joint ventures and alliances, and also entered into international franchising, licensing, and distribution agreements with local firms around the world. At the same time, Indian and Chinese MNE managers were exposed to new forms of organizational know-how about monitoring and overseeing – i.e., governing – firm activities. These managers shared senior managerial duties with foreign executives on international alliance steering committees and international joint ventures. They served on audit committees furnishing data to the Western accounting firms that assess the performance of foreign franchisees, licensees, and distributorships.

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