Global Differences in Corporate Governance Systems

Markus Berndt explains the observable evolution and persistence of differences in financial systems by elaborating on the influence of network effects on corporate governance systems. He develops a coherent theoretical framework pulling together existing agency theories and providing new theoretical foundations wherever there is a gap in the current theoretical understanding of corporate governance.

Over the past few decades two different corporate governance systems have evolved. Countries with an "insider system" exhibit a high level of ownership concentration, illiquid capital markets, and a high level of crossholdings. Countries with an "outsider system" are characterized by widely dispersed ownership, liquid stock markets, a low level of inter-corporate crossholdings, and an active market for corporate control.

Markus Berndt explains the observable differences by elaborating on the influence of network effects on corporate governance systems. He develops a coherent theoretical framework pulling together existing agency theories and providing new theoretical foundations wherever there is a gap. The presented theory gives answers to the following questions: How does the insider system of corporate governance function despite its inefficiencies? Why do we not see any significant convergence of ownership structures and regulations? What are the legislative requirements in the different systems? How does globalization affect the effectiveness of the institutional arrangements? Which system should be chosen by developing countries?

Autorentext
Dr. Markus Berndt promovierte bei Prof. Dr. Manfred J. Holler im Rahmen des Graduiertenkollegs für "Recht und Ökonomik" der Universität Hamburg. Er ist Referent am Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung in Bonn.

Inhalt

1. Introduction.- 2. Differences in Corporate Governance Systems.- 2.1 Components of a Corporate Governance System - Scope of the Analysis.- 2.2 Empirical Evidence.- 2.3 Explanations for the Evolution of Different Systems.- 2.4 Explanations for the Persistence of Different Systems.- 3. Analytical Framework.- 3.1 Purpose of Corporate Governance.- 3.2 The Role of Institutions and Law.- 4. Dispersed Control - the Outsider System.- 4.1 Takeover Market and the Agency Costs of Dispersed Control.- 4.2 Institutional Innovation.- 4.3 A Case for Mandatory Disclosure.- 5. Concentrated Control - the Insider System.- 5.1 Differences with Dispersed Control.- 5.2 Modeling the Reputation Mechanism of Concentrated Control.- 5.3 Implications.- 5.4 Legislative Intervention.- 6. Network Effects via Capital Markets.- 6.1 Influence of Corporate Governance on Capital Market Liquidity.- 6.2 The Influence of Capital Market Liquidity on Corporate Governance.- 6.3 Resulting Network Effects.- 7. Evolutionary Model.- 7.1 Intention and Structure.- 7.2 Setup.- 7.3 Control Strategy.- 7.4 Legislation and Financial System.- 8. Implications for Corporate Governance Reforms.- 8.1 Sequencing of Reforms.- 8.2 Hysteresis of Inefficient Systems.- 8.4 An Outlook on Privatization Strategies.- 9. The Influence of Coordination Benefits on Corporate Governance and Accounting Standards.- 9.1 Objective of this Chapter.- 9.2 Setup.- 9.3 Equilibria.- 9.4 Social Welfare.- 9.5 Implications of the Coordination Model.- 10. Conclusion.- Appendix: Difference between Entry-Inducement and Entry-Deterrence -A Theoretical Note.- References.