Incentives in Corporate Governance: the Role of Self-Regulation

Abstract

Corporate governance stems from the interplay of legal norms, security regulation, self-regulation and best practices. Recent scandals and frauds have forced governments to update laws on corporate governance: the legislation process has been very fast in some countries, others have lagged. Law and regulation intervene and become effective only ex-post, when damages have been done and malpractice is self-evident. On the contrary, self-regulation is a quicker and more flexible response to changing market conditions and of great impact on the relationship between firms and their environment. A self-regulatory organization (SRO) such as the stock exchange could administer the screening device, based on an indicator developed on the provisions of the corporate governance code issued by the SRO itself.