The effectiveness of governance mechanisms in emerging markets: A review

Abstract

Corporate governance has advanced hugely in the last two decades and many governance best practices have emerged that focuses on measures companies should take in order to improve their governance. These suggested mechanisms are effective in developed markets because they are a remedy for problems that occur in those markets. But are these mechanisms also effective in emerging markets? By reviewing the literature, this paper critically discusses and compares the effectiveness of governance mechanisms (both internal and external) in emerging and developed markets and finds that while the classic mechanisms such as board structure and independence are not effective in emerging markets, there exist some alternative mechanisms such as external audit or dividend policy that are more effective.