Why Does Corporate Governance Matter for International Business?

Corporate governance relates to the structure of rights and responsibilities among the parties with a stake in the firm (Aoki, 2001). Effective corporate governance employs mechanisms to ensure executives respect the rights and interests of company stakeholders, as well as making those stakeholders accountable for acting responsibly with regard to the protection, generation and distribution of wealth invested in the firm (Aguilera et al., 2008). Effectiveness may relate to different dimensions of corporate governance, ranging from monitoring and control over managerial discretion to promoting entrepreneurial leadership and innovation. On this basis, a large and diverse set of research now looks at corporate governance based on agency theory in economics, organizational and institutional literatures in sociology, or law and economics approaches — to name just a few.