Does Public Governance Always Matter? How Experience of Poor Institutional Quality Influences FDI to the South

This paper investigates whether the higher prevalence of South multinational enterprises (MNEs) in risky developing countries may be explained by the experience that they have acquired of poor institutional quality at home. We confirm the intuition provided by our analytical model by empirically showing that the positive impact of good public governance on foreign direct investment (FDI) in a given host country is moderated significantly, and even in some cases eliminated, when MNEs have been faced with poor institutional quality at home.

Institutional Quality and FDI to the South An Analytical Approach

We ask whether MNEs’ experience of institutional quality and political risk within their “home” business environments influences their decisions to enter a given country. We set out an explicit theoretical model that allows for the possibility that firms from South source countries may, by virtue of their experience with poor institutional quality, derive a competitive advantage over firms from North countries with respect to investing in destinations in the South. We show that the experience gained by such MNEs of poorer institutional environments may result in their being more prepared to invest in other countries with correspondingly weak institutions.

Class-size Reduction Policies and the Quality of Entering Teachers

State-wide class-size reduction (CSR) policies have typically failed to produce large achievement gains. One explanation is that the introduction of such policies forces schools to hire relatively low-quality teachers. This paper uses data from an anonymous state to explore whether teacher quality suff ered from the introduction of CSR. We find that it did, but not nearly enough to explain the small achievement effects of CSR. The combined fall in achievement due to hiring lower quality teachers and more inexperienced teachers is small relative to the unrealized gains. Furthermore, between-school diff erences in the quality of incoming teachers cannot explain the poor estimated CSR performance from previous quasi-experimental treatment-control comparisons.

Factors Affecting Audit Quality in the 2007 UK Regulatory Environment: Perceptions of Chief Financial Officers, Audit Committee Chairs and Audit Engagement Partners

In line with global changes, the UK regulatory regime for audit and corporate governance has changed significantly since the Enron scandal, with an increased role for audit committees and independent inspection of audit firms. UK listed company chief financial officers (CFOs), audit committee chairs (ACCs) and audit partners (APs) were surveyed in 2007 to obtain views on the impact of 36 economic and regulatory factors on audit quality. 498 usable responses were received, representing a response rate of 36%. All groups rated various audit committee interactions with auditors among the factors most enhancing audit quality. Exploratory factor analysis reduces the 36 factors to nine uncorrelated dimensions. In order of extraction, these are: economic risk; audit committee activities; risk of regulatory action; audit firm ethics; economic independence of auditor; audit partner rotation; risk of client loss; audit firm size; and, lastly, International Standards on Auditing (ISAs) and audit inspection. In addition to the activities of the audit committee, risk factors for the auditor (both economic and certain regulatory risks) are believed to most enhance audit quality. However, ISAs and the audit inspection regime, aspects of the ‘standards-surveillance compliance’ regulatory system, are viewed as less effective. Respondents commented that aspects of the changed regime are largely process and compliance driven, with high costs for limited benefits, supporting psychological bias regulation theory that claims there is overconfidence that a useful regulatory intervention exists.