Corporate Governance and Financial Performance in the Emerging Markets: Do ADRs Perform any Better than Non-Cross-Listed Firms?

Abstract

We investigate the impact governance standards have on financial performance of firms operating across various political and socioeconomic regimes. Specifically, we examine the performance of non-cross-listed emerging market firms that implement corporate governance standards similar to those mandated of firms listed on US exchanges. Using cross-sectional time-series analysis, we find that a more rigorous corporate governance structure is associated with better performance (as measured by return on assets (ROA)) among non-cross-listed firms. Cross-listed firms, whose common stock trades as American Depository Receipts (ADRs) and who are subject to the same listing requirements as domestic US firms, exhibit no evidence of improved performance. We also find that the positive performance effect of improving corporate governance is mitigated among firms with higher market risk (i.e., beta).