**1. Introduction**

Since the passage of the Sarbanes-Oxley Act (SOX) in 2002 and stiffened restrictions imposed by the US Securities and Exchange Commission in 2003, corporate governance in the US has been significantly strengthened. A substantial amount of research into the impact of these governmental initiatives indicates that American firms have exhibited enhanced board oversight with more effective control systems, reduced their risk taking and experienced an increase in value [1–7]. A number of researchers have also investigated the relationship between these more stringent governance rules and the financial performance of publicly

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© 2016 The Author(s). Licensee InTech. This chapter is distributed under the terms of the Creative Commons

held corporations trading in US markets, as well as the performance of firms operating under a more rigorous governance environment in other developed countries [8–11]. However, the relationship between corporate governance and the performance of firms operating in the emerging markets has drawn little attention [12–15], while the comparison of crosslisted emerging market (EM) firms issuing American Depository Receipts (ADRs), that are required to abide by SEC restrictions, and non-cross-listed EM firms have received even less [16–19]. In this study, we address the governance – performance relationship for crosslisted (ADR) firms trading on US markets and non-cross-listed EM firms. To do this we use the corporate governance score of companies that is provided by the *Bloomberg Professional* database and corporate governance rules mandated by the *New York Stock Exchange* (NYSE) or the *National Association of Securities Dealers Automated Quotations* (NASDAQ) for firms trading on their exchanges; the rules are identified in Section 303A of the NYSE's Listed Company Manual.

Investors have shown an increasing interest in emerging market countries in recent years. Despite the many evident problems associated with political instability, lacking infrastructure and uncertain property rights protections, the latent potential for substantial growth in these untapped markets is clearly present. Both corporate leaders and politicians have begun to signal their recognition that the influx of capital is the key to sustained economic development and growth. To attract this requisite capital in a competitive global economy, more robust corporate governance standards are beginning to evolve; either by government mandate or through self-imposed corporate standards. To examine the impact of enhanced governance standards on corporate performance, we focus on firms operating in countries identified by Bloomberg's 2014 Emerging Market rankings for which there are available data. In this study we apply a two-step Generalized Least Squares (GLS), random effects model and company specific data on a large sample of firms over the 2008–2014 period.

Given that emerging market countries are endeavoring to compete for a slice of the global economic pie, this study provides both theoretical insight and practical relevance related to international corporate governance practices and the impact it has on creating and maintaining investor confidence. We find that stronger governance is associated with higher financial performance among the non-cross-listed EM firms, but we were unable find any significant evidence for the cross-listed ADRs. Furthermore, CEO duality has a negative impact on financial performance only for ADR firms, while none of the other governance standards have a significant effect on firm performance. Finally, among cross-listed firms, it appears to be important to separate the chief executive's position and authority from that of the chairman of the board, so that the authority of the board of directors (BOD) is not usurped or mitigated. This is important because it strengthens the mechanisms used to monitor management, which leads to enhanced financial performance. A CEO lacking appropriate oversight by the BOD may have the incentive and certainly the ability to accept investments that self-benefitting, but prove harmful to the firm in the long run [20, 21]. Finally, the findings also reveal that market risk negatively moderates the governance-performance relationship in the emerging markets. As a firm's market risk increases, the positive effect on financial performance associated with strengthening corporate governance significantly declines. The results indicate that strong corporate governance is an important element toward improving financial performance among EM firms; however, reducing the risk of an equity investment and controlling for stock price volatility is of primary importance for investors.
