International Capital Flows and the Corporate Governance Environment

Dr Christoph Nedopil joined IMD International as a Research Associate in 2006, where he has contributed to numerous international executive education programs, especially on corporate governance. While co-authoring more than 30 case studies, he also wrote his dissertation at the TU-Berlin. In 2008 he won the EURAM Best Doctoral Paper Award.

The relationship between the institutions of corporate governance and capital flows is complex. The majority of the literature however concentrates on the influence corporate governance has on investments. The reverse causality was so far mostly neglected, despite great relevance for investors, managers and policy makers. Christoph Nedopil focuses in this study on the topic what influence international investments have on the development of the corporate governance environment and answers this question both conceptually and empirically. For this purpose a quantifiable model for the corporate governance environment is developed, which is analyzed employing a novel dataset for the period between 1991 and 2005. The author can show that the corporate governance environment in developing countries improves under certain circumstances, especially if the corporate governance environment of the source country of the investment is higher developed. The findings of this study help both the academic debate on corporate governance as well as the economic and political discussion on whether and how foreign investors influence the evolution of various institutions.