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Controlling the Controllers: The impact of legal protections and corporate governance structures on investor reactions to international earnings
Chen - Lung Chin,
National Chengchi University
Gary Kleinman, Touro Graduate School Of Business
Picheng Lee, Pace University
Yu - Ju Chen, Asia University
ABSTRACT. This study investigates the impact of corporate internationalization, governance structures, and legal protections on the foreign earnings response coefficient (ERC). To improve competitiveness, firms worldwide have expanded aggressively into foreign markets, thereby increasing their exposure to external risks and uncertainties on the one hand, and sources of growth and reward on the other. Thus it may produce dual effects on the firm’s foreign ERC. Using a sample drawn from Taiwan, we found that greater corporate internationalization was associated with lower foreign ERC. Corporate internationalization, which was measured in various ways, was negatively related to foreign ERC. Also, we expect, and find, that companies can reduce the negative effects of internationalization on their foreign ERC by enhancing their corporate governance or investing in countries where the legal protections for investors is strong.
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