Mandatory Governance And Voluntary Governance: The Interactive Effect Of Legal Environment And Corporate Features

There have lots of differences in corporate governance around the world, which mainly exists in two levels: countries and individuals. The former displays as differences among corporate governance patterns, the latter expresses in the level of corporate governance among different corporations within a country. Early studies focused on the governance patterns, while there have large number of studies about the governance differences in individual level now. And its main content consists of corporate governance evaluation and the effectiveness of corporate governance based on the evaluation. Although a few researches have started to pay attention to the driving force and mechanisms behind governance arrangement, these studies have not distinguish the "Mandatory Governance"(MG) complying with laws and regulations, and the "Voluntary Governance"(VG) which is company's voluntary behavior above the compliance status. Based on this point, we theoretically and empirically analyses the factors influencing corporate governance behavior through introducing this two core concepts.We first reveal the legal environment as well as corporation features' impact on MG and VG by means of constmcting an entrepreneur model. And our model indicates that legal environment has an important impact on MG and VG, but at the some time, finance dependence can also influence MG while the changes in agency cost and finance dependence will significantly alter VG. On this basis, we construct listed firms' MG and VG index and its sub-indexes based on the data from the special survey of corporate governance drafted by China Security Regulatory Commission in 2007, and then empirically analyses legal environment, finance dependence and agency cost's influence on MG and VG index and its sub-indexes.The regression results show that legal environment and corporate features may interactively influence corporate governance. And a region's legal environment is an important factor influencing MG, but MG will be also different because of the difference in finance dependence. In general, companies in lower legal environment have more willing to comply with guidelines and enact MG, but in terms of companies with adequate own-funds, this willing may much stronger. It is mainly duo to the existence of MG which can reduce investors' minimum own-funds constraints and help entrepreneurs to obtain an additional profit. For VG, agency cost and finance dependence are also key impacting variables in addition to legal environment. Companies in better legal environment have more desires to implement VG, while companies with lower agency cost will also have more VG behaviors, and this influence may not be changed by legal environment. Unfortunately, firms with higher finance dependence would not want to carry out VG, but if it also has a higher agency cost, the result will be opposite. In general, finance dependence has a certain impact on VG, but the impact is much less than agency cost.Further regression research about sub-indexes confirmed that legal environment plays an important and robust role in corporate governance, but there have great differences in factors influencing sub-indexes, while the discrepancies are less in MG. In terms of MG, all the regression results are consistent with the overall index except boards of directors and transparency sub-indexes. And in VG, only the result of shareholders sub-index is consistent with overall results. We argue that this result mainly ascribe to the differences in driving force. From regression results, we can conclude that MG is mainly promoted by boards of directors while VG is shareholders, especially controlling shareholders. So, every main body will implement different mechanisms' governance according to their own interests.