Introduction

As the recent wave of governance scandals and reforms has focused the public debate on how publicly held corporations should be structured and organized, it is hardly surprising that corporate governance of listed companies has captured the legal imagination. Books, articles and reports on the corporate governance of listed companies abound. Corporate governance reforms in developed countries as well as emerging markets are high on the policy agendas. Proposals have arisen to change, among other things, the role of non-executive directors, executive pay, disclosure, the internal and external audit process, and sanctions on director's misconduct. Suggestions have also been advanced to create new standards of integrity for auditors, analysts and rating agencies. Policymakers and lawmakers are prompted to design measures to protect shareholders from fraud, poor board performance and auditor failure. These most notably include CEO and CFO certification of accounts, imposition of internal controls, the prohibition of company loans to managers and the requiring of firms to establish an independent audit committee.

While the question of the economic effect of the corporate governance regulation on the performance of listed companies has become a leading concern for both lawmakers and investors, the evidence, however, is mixed. On the one hand, it is widely acknowledged that corporate governance rules and standards promote efficiency, transparency and accountability within firms, thereby improving a sustainable economic development and financial stability.