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2002 | Buch

Introduction Kapitel lesen Erstes Kapitel lesen

Global Differences in Corporate Governance Systems

Theory and Implications for Reforms

verfasst von: Markus Berndt

Verlag: Deutscher Universitätsverlag

Buchreihe : Ökonomische Analyse des Rechts

Enthalten in: Professional Book Archive

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Inhaltsverzeichnis

Frontmatter
1. Introduction
Abstract
Building a sound financial system is a prerequisite for economic development in both transition economies and developing countries (Fries and Lane, 1994, p. 21; EBRD, 1998, p. 92). To ensure long-term financial stability, the development of bond and equity markets is one important way of reducing the financial fragility of emerging economies (Taylor, 1999). This insight has led various international organizations to work on principles of institutional foundations for well-functioning equity markets: corporate governance. The most cited corporate governance principles are laid out by the OECD (1999). The World Bank concentrates on implementation strategies.1 Emphasis on regulatory aspects is put by the IOSCO (1998).
Markus Berndt
2. Differences in Corporate Governance Systems
Abstract
Before we turn to the distinctive differences in corporate governance systems around the world, it is important to know what to look for. The word “system” implies that it is made up of many components. It is inevitable to concentrate on some selected parts of an elaborate system. While this always entails the danger of missing important points, it is only by abstraction that we can learn anything at all about a complex topic like corporate governance.
Markus Berndt
3. Analytical Framework
Abstract
In perfect capital markets without taxes and transaction costs the source of finance and the resulting ownership structure are irrelevant to the costs of capital, as proven by Modigliani and Miller (1958). In their seminal paper, however, Jensen and Meckling (1976) show that the separation of ownership and control that is associated with corporate finance produces agency costs. Classical agency costs arise from asymmetric distribution of information between the party (the agents) that takes some action on behalf of outsiders (principals), combined with the fact that results are not perfectly correlated with efforts of the insiders. Depending on the timing of contracting, action of the agent, and random influences of nature, one distinguishes between moral hazard or hidden action and hidden information, as well as adverse selection.
Markus Berndt
4. Dispersed Control - the Outsider System
Abstract
In firms that operate under the corporate governance strategy of dispersed control, agency costs of are mainly mitigated through a market for corporate control (Hart, 1995). The logic of this is as follows. If the external environment and the particulars of a young firm that is about to go public render dispersed control the optimal governance strategy, a seller at an IPO has an incentive to choose the optimal institutional arrangements for this control strategy in order to maximize the price that she can attain. As shown by Grossman and Hart (1988), such optimal institutional arrangements include one-share-one-vote provisions. This allows the optimal functioning of the takeover market. If, later on, the management extracts too many private benefits (e.g., through excessive empire building or leisure), the share price drops, and the company becomes a takeover target. In order to get control over the deficient firm, an acquirer has to buy the majority of both cash flow and control rights.
Markus Berndt
5. Concentrated Control - the Insider System
Abstract
With concentrated control, the takeover market does not function as a disciplining device. If a controlling owner extracts excessive private benefits, a potential acquirer can only obtain control by buying the control stakes directly from the controller. The controller can always demand compensation for the foregone private benefits that come with the sale. This compensation takes the form of a voting premium that is paid when acquiring control blocks. Empirical research has quantified this premium to range from 5.4% in the US to 82% in Italy. An overview of these empirical finding is given by Macey (1998, p. 910).
Markus Berndt
6. Network Effects via Capital Markets
Abstract
As discussed in section 5.3.2, concentrated control comprises of strategic investment into illiquid assets that provide specific utility for the controlling owner. As mentioned earlier on, the right of ownership to a share consists of two rights.
Markus Berndt
7. Evolutionary Model
Abstract
The subsequent model illustrates the interference between individual corporate governance strategy, capital markets, and legal regulation. The analysis is separated in three parts. After the setup, it is first shown how the interaction of corporate governance and capital markets produces network effects that lead to a persistent coordination of corporate governance strategies between firms. In this section, the influence of law is taken as exogenous. It is shown how different regulatory environments influence the stability of corporate governance equilibria. In the succeeding section, legal intervention is endogenized. It is assumed that a public-regarding legislator takes the corporate governance systems of firms as given and sets the law accordingly. As will be shown, this behavior increases the stability of the resulting financial systems.
Markus Berndt
8. Implications for Corporate Governance Reforms
Abstract
As suggested in section 7.3.3, the amount of autonomous cost of capital a s can be seen as decreasing in the overall quality of law Q (e.g. contract law, law enforcement, etc.). The reason for this is straightforward. The easier it is for an agent to exploit the principal, the higher are the resulting agency cost. Since the outsider system relies heavily on arm’s length financing supported by the legal system it is reasonable to assume that the autonomous costs of capital a D of dispersed control is more elastic in Q than the autonomous costs of capital a c of concentrated control, which is also enforced by relationship-based means. Figure 29 illustrates this idea. Both kinds of autonomous costs of capital are decreasing in the quality of law, but the autonomous costs of capital of dispersed control a D are decreasing faster from a higher level.
Markus Berndt
9. The Influence of Coordination Benefits on Corporate Governance and Accounting Standards
Abstract
So far, the analysis has shown why we were able to observe two different systems of corporate governance emerging and persisting over the last few decades. The resulting implications for corporate governance reforms have been given in chapter 8. The analysis, so far, has focused on two sources of network effects that influence a corporate governance system. These are network effects via capital markets and network effects via regulation. This final chapter completes the assessment of the influence of network effects on corporate governance by looking at a third possible source of such effects. This third source is the benefits that result directly from a coordination of corporate governance approaches between firms. Such coordination benefits are not specific to the dichotomy of the insider system on one side and the outsider system on the other side, as it has been discussed throughout the previous chapters. Hence, coordination benefits are dealt with separately in this chapter.
Markus Berndt
10. Conclusion
Abstract
It has been the aim of this dissertation to produce some new theoretical insights in the academic corporate governance debate. One major puzzle that has always remained in this debate was the question why two different systems have evolved after World War II and persisted until today, namely the outsider system and the insider system. Both systems seem to have performed about equally well.
Markus Berndt
Backmatter
Metadaten
Titel
Global Differences in Corporate Governance Systems
verfasst von
Markus Berndt
Copyright-Jahr
2002
Verlag
Deutscher Universitätsverlag
Electronic ISBN
978-3-322-81431-9
Print ISBN
978-3-8244-7694-7
DOI
https://doi.org/10.1007/978-3-322-81431-9