Corporate Governance, Market Discipline, And Productivity Growth

This chapter is a revised and adapted version of Köke (2001a). It examines the role of corporate governance and market discipline for total factor productivity growth. Understanding the determinants of productivity growth is important. According to Börsch-Supan (1999), Germany and France have lagged the US in terms of total factor productivity by around 20% throughout the entire period of 1970–1995. Researchers and policy makers alike recently recognize productivity as a major determinant of future generations’ welfare. The corresponding interest in the sources of productivity is likely to increase as countries move away from pay-as-you-go financing into partially or fully funded pension systems: While total factor productivity is equally important for the (internal) rate of return under both types of pension systems, greater use of capital markets under a funded system could improve corporate governance and ultimately spur productivity growth, as argued by Borsch-Supan and Winter (1999). Hence, good corporate governance could help reduce the transition burden associated with a change in the pension scheme.