The impact of corporate governance legislation on the market for corporate ownership

Abstract

Over the past few years, the number of corporate scandals and failures throughout the world has escalated, prompting new legislation designed to enhance corporate governance. While the efforts to legislate corporate governance policies are designed to protect the public interest, they have altered the relationship between shareholders and management (Canada et al. 2008). Rather than be subjected to new corporate governance requirements, many companies have indicated an interest in not being traded on the various stock exchanges and have chosen to alter their corporate structure. The purpose of this study is to examine how a company‟s decision to shift corporate ownership and/or corporate control in the face of new corporate governance legislation and regulatory requirements can alter the traditional markets for ownership and control. In order to examine this issue, the paper first develops a typology for predicting the type of organizational restructuring that might occur. This typology incorporates factors from prior research and disentangles the market for ownership from the market for corporate control. The typology is then used as a basis for an in-depth examination of an organization whose corporate structure changed in response to mandated changes in corporate governance. The results provide evidence that corporate governance legislation can potentially induce incumbent management to voluntarily compete in the market for ownership, notwithstanding the associated exposure in the market for managerial control