The Role of Corporate Governance in Transition Countries

Corporate governance has come to the forefront of academic research due to the vital role it plays in the overall health of economic systems. The wave of U.S. corporate fraud in the 1990s was attributed to deficiencies in corporate governance. The recent 2008-2009 global financial crisis, triggered by the unprecedented failure of Lehman Brothers and the subprime mortgage problems, renewed interest in the role corporate governance plays in the financial sector. The development of a strong corporate governance framework is important to protect stakeholders, maintain investor confidence in the transition countries and attract foreign direct investment. This paper looks at the role of corporate governance in European transition countries in their transformation to a market economy. The paper compares the different levels of corporate governance established among the transition countries. Using synthetic taxonomic measures a study is conducted to look at the degree of corporate governance development by the new EU 2004 and 2007 accession transition countries and the convergence of corporate governance regimes across the countries. Our results indicate that transition countries that are closer to the English legal origin made greater strides in capital market and corporate governance development.