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AN ANALYSIS OF ENABLING VS. MANDATORY CORPORATE GOVERNANCE STRUCTURES



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Draft December 20 2005 AN ANALYSIS OF ENABLING VS MANDATORY CORPORATE GOVERNANCE STRUCTURES POST SARBANES OXLEY Anita Indira Anand Visiting Olin Scholar in Law and Economics and Visiting Lecturer in Law Yale Law School Associate Professor Faculty of Law Queen s University Kingston Ontario Canada email anita anand yale edu Thanks to Bernard Black Kim Brooks Doug Harris Edward Iacobucci Lewis Johnson John Knowlton Kate Litvak Niamh Maloney Marc Paulez Jessie Penley Larry Ribstein Arthur Sweetman and Michael Trebilcock for their very helpful comments as well as to the Social Sciences and Humanities Research Council of Canada for providing comments of an anonymous reviewer Deep thanks also to Jessie Penley Ryan Sheahan and Nicole Stephenson for their excellent research assistance Thanks to participants in the Queen s Law and Economics Discussion Group the annual conference of the Canadian Law and Economics Association 2004 and the annual meeting of Law and Society Canada for their helpful comments I extend my appreciation to the Queen s University Advisory Research Council the Foundation for Legal Research and the Social Sciences and Humanities Research Council of Canada for assistance in funding research underlying this project ABSTRACT I argue that firms have incentives to adopt corporate governance practices in the absence of a legal requirement to do so I further contend that a partially enabling governance regime and particularly one coupled with mandatory disclosure of a firm s governance practices is likely to yield a high level of compliance at lower direct costs to the issuer than a wholly mandatory regime While a wholly mandatory structure may yield slightly better compliance its other benefits are uncertain and its costs are likely much higher I seek to push the boundaries of existing comparative corporate governance scholarship by arguing that the enabling mandatory dichotomy informs analyses of corporate governance regimes across countries I Introduction In



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