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Uniformity as response to soft law: Evidence from compliance and non‐compliance with the Dutch corporate governance code
Author(s) -
Hooghiemstra Reggy,
van Ees Hans
Publication year - 2011
Publication title -
regulation and governance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.417
H-Index - 45
eISSN - 1748-5991
pISSN - 1748-5983
DOI - 10.1111/j.1748-5991.2011.01118.x
Subject(s) - corporate governance , compliance (psychology) , accounting , flexibility (engineering) , soft law , reputation , business , code (set theory) , set (abstract data type) , law and economics , coping (psychology) , code of conduct , enforcement , economics , law , political science , finance , psychology , management , social psychology , computer science , international law , psychiatry , programming language
The objective of the paper is to examine how firms have dealt with the trade‐off between flexibility and uncertainty that is characteristic for the decision‐making of firms in coping with self‐regulatory initiatives in general and the comply‐or‐explain principle in corporate governance in particular. Using unique data for 126 listed Dutch firms, we find that firms respond to this self‐regulatory initiative by largely complying with the code recommendation, possibly out of fear that the firm's reputation may be damaged. Furthermore, we find evidence suggesting that firms confine themselves to adopting a specific set of code recommendations and use similar arguments to explain non‐compliance. Our findings indicate uniformity in adopting the standard of good governance which is not in line with the logic of corporate governance codes and casts doubt on the effectiveness of this form of soft law. Overall, the paper's findings indicate that more restrictive (regulatory) instruments may be necessary to make firms conform to the spirit of codes.