Does ‘good' corporate governance help in a crisis? The impact of country- and firm-level governance mechanisms in the European financial crisis

By using hierarchical linear modeling, we show that 25 percent of the heterogeneity in firm performance is among countries, indicating the importance of including country-level institutions in our analyses. We find that the general quality of the legal system and creditor rights protection are positively related to firm performance. Moreover, at the firm level, we find that larger and more active boards, where the role of board chairman and CEO are combined in same person performed the best, while ownership wedge and more CEO equity based compensation negatively impact firm performance during the recent financial crisis. Finally, our study shows that both levels - firm and country -do not substitute or complement each other with respect to firm performance, but rather function independently from each other.