Corporate Governance: Growth and Investment. A Case of Selected Central and Eastern European Countries

Abstract: Purpose: The main purpose of this paper is to eliminate the gap between theory and practice about corporate governance in selected countries in Eastern and Central Europe, which have transitioned from a socialist to a market economy. Method: We collect the necessary data for 28 European Countries from the European Bank for Reconstruction and Development (EBRD). Countries are then grouped into 4 regions. Using OLS regressions two hypotheses are being tested, where “investment levels” is the explanatory variable for the first hypothesis, and “GDP growth” for the second one. Each hypothesis consists of two regressions, one representing the “corporate governance index” and the other “corporate governance indicators”. Conclusions: The main finding of this paper is that corporate governance is negatively correlated to investment levels and GDP in the selected countries. The remaining independent variables in the regressions show statistically significant correlations as suggested by other papers and theory. The inefficiency of corporate governance and weak law institutions might be the main drivers of the underlying result.