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Corporate Governance in Emerging Markets
Abstract
The turning of the 21st century has been marked by reforms in corporate governance practices around the world. Whether due to shocks caused by the economic crisis in East Asia, Russia and Latin America, or by financial scandals in the United States and Europe, prevalent ways of doing business have changed in terms of demands for greater corporate transparency and accountability, shifts in control of ownership, empowerment of new types of owners and so on. Consequently, countries and firms have adapted their corporate governance policies and practices. In this chapter, we explore the current patterns of the ownership structure of publicly listed firms in six emerging countries: Brazil, Chile, South Korea, Czech Republic, Hungary, and Poland during the first decade of the 21st century, and compare our data with existing ownership research of these countries in the late 1990s. We conclude that although concentration of corporate shareholdings continues to be a common denominator among these emerging countries, the processes and structures controlling firms across countries are remarkably different.
... Also MSE is different because during the last decade has been implemented and improving regulation towards the investors and transparency, but also during this process MSE as whole has been losing financial performance and increased financial stress, see (Garcia, 2011) Following same line, (Aguilera, Kabbach-Castro, Lee, & You, 2011) emerging economies deals with different ownership structures compared with developed countries, local companies have been adopted new regulatory and accountability structure to assure access to future cash flows improving governance practices and transparency. ...
... What are the reasons to be deslisted? (Modigliani & Miller, 1963), (Zingales, 1995), (Mello & Parsons, 1998) Deslisted Companies Emerging Market Analysis (Wolf, 2004), (Aguilera, Kabbach-Castro, Lee & You, 2011) Research Questions Questions Is there any difference in research results using different Even Study Variants? (Ball & Brown, 1968), Investors Reactions and Delistings Reasons (Sanger & Peterson, 1990), (Sanger & McConnell, 1986), (Bharath & Dittmar, 2010) Deslisted, Emerging Markets and Event Study (Corrado & Truong, 2008) Event Rsearch Technique variations (Corrado, 1989), (Bartholdy, Oison & Peare, 2007), (Das, Saudagaran & Sinha, 2004) Results Table 5 Knowledge Creation For MSE investors did not react as excpected in typical firm deslistd process. ...
After the adoption of new regulations in Corporate Governance practices and Transparency following the trend of international financial markets, Mexican Stock Exchange has decreased in number of public companies during the last three decades we explored a comprehensive list of delisted companies during the same period to analyze and understand the motives and reasons of the deregistration process in Mexico. Delisted companies in MSE has experienced low financial performance and unexpected stable stock prices, our resultsare related with systemic flaw in regulation, insider information and the opportunity to the MSE to increase in size and number of public companies.Keywords: corporate governance, financial performance, insider information, regulation transparencyResumen. Después de la adopción de nuevas regulaciones enfocadas a mejor gobierno corporativo y transparencia, la Bolsa Mexicana de Valores ha seguido la tendencia mundial en ambos conceptos sin embargo el número de compañías listadas ha decrecido en las últimas tres décadas. Exploramos las razones y motivos detrás del proceso de cancelación de registro de las compañías en México durante ese mismo periodo para entender mejor su funcionamiento. Encontramos que dichas compañías han tenido un desempeño financiero bajo y un inesperado precio de la acción estable, los resultados sugieren de que es probable que exista fuga de información a nivel sistema y la oportunidad de poder hacer crecer el número y tamaño de las compañías públicas.Palabras clave: desempeño financiero, gobierno corporativo, información privilegiada, regulación, transparencia
... These insights provide a reference for analyzing Brazilian studies since research on boards emerged in Brazil in 2000 and part of the knowledge produced was based on studies from other institutional environments. However, it should be noted that, over the years, the first Brazilian cases emerged, and it was possible to notice some particular characteristics, such as 1. high ownership concentration (Pinto & Leal, 2013); 2. high participation of the state as a shareholder (Lazzarini, 2011); and 3. majority presence of family businesses (Aguilera, Kabbach de Castro, Lee, & You, 2012). These and other characteristics may require specific designs for research on boards of directors in Brazil. ...
... In addition, we have not identified studies that relate to boards and external CG mechanisms. This gap can be a fertile field for future research, mainly because most Brazilian companies have a family controlling shareholder (Aguilera et al., 2012;Black, Carvalho, & Gorga, 2010). Family firms seek to achieve not only the economic goals related to the business, but also to meet the family goals (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007) and family members, even if they are not shareholders, can influence business decisions (Mitchell, Agle, Chrisman, & Spence, 2011); therefore, the board's tasks may not be limited to management control. ...
Purpose:
The purpose of this paper is to review and systematize previous studies on boards of directors in Brazil and propose an agenda to guide future studies.
Originality/value:
A conceptual model is developed to provide an integrated view for research on the board of directors, incorporating variables from different levels that connect governance mechanisms, best practices, board dynamics and company performance; we identified gaps for the research agenda.
Design/methodology/approach:
This review analyzed 95 articles on boards of directors in Brazil between 2000 and 2019. The review was conducted in three major steps: 1. planning; 2. conducting; and 3. organizing the data and reporting the findings.
Findings:
There is a growing interest in studying boards of directors in Brazil, with a wide range of topics. The most studied are board composition, best practices, diversity and gender. Despite the diversity, the previous studies are homogeneous in theoretical and methodological terms. Based on the agency theory, most articles sought to relate board demography to financial performance, and the findings are not convergent. This scenario opens up some research avenues to address topics that have not yet been explored, such as board processes, board tasks, and differentiation between board performance and company performance.
... Estrin and Prevezer (2011) develop a CG framework in the BRIC countries by focusing on the strength of informal institutions as well as the fit between formal and informal CG institutions with an emphasis on ownership and external investors. Aguilera, Kabbach de Castro, Lee, and You (2012), and Kabbach de Castro, Aguilera, and Crespí-Cladera (2013) illustrate with empirical data the ownership changes in publicly traded companies in EMs due to privatization trends, focusing in particular on South Korea, Brazil, Chile, and Central European countries. They show that often the goals of dismantling or weakening ownership concentration and empowering minority shareholders are rarely accomplished due to weak minority shareholder protection rights. ...
... However, there exist large differences among the four BRIC countries in terms of ownership structures and shareholder treatment as shown in Aguilera et al. (2012) or in the special issue on ownership and family firms in EMs . ...
This chapter provides an overview of corporate governance (CG) in emerging markets (EMs). Focusing mainly on the BRIC countries (Brazil, Russia, India, and China), the chapter adopts a systematic cross-national comparative approach. It begins by highlighting the importance of better understanding CG in EMs, and identifies some of the key challenges these countries face as they seek to enhance their CG. The chapter goes on to review managerial research conducted after the year 2000 on CG in emerging markets in the following four categories: ownership, boards of directors, top management teams (TMTs), and CG practices and reform. The chapter discusses the main research questions and findings from this collective body of work. It is noteworthy how “siloed” this research has been in terms of drawing few cross-national comparisons. The third section offers an overview of the main CG features of each of the BRIC countries relative to one another, taking on the OECD Guidelines of CG as its benchmark framework. To do so, the chapter first addresses core governance areas related to the overall model of CG, ownership types and ownership rights, information disclosure and reporting, and stakeholder management and corporate social responsibility. The chapter concludes by highlighting common themes for CG in emerging markets and suggesting fruitful areas for future research.
... Estrin and Prevezer (2011) develop a CG framework in the BRIC countries by focusing on the strength of informal institutions as well as the fit between formal and informal CG institutions with an emphasis on ownership and external investors. Aguilera, Kabbach de Castro, Lee, and You (2012), and Kabbach de Castro, Aguilera, and Crespí-Cladera (2013) illustrate with empirical data the ownership changes in publicly traded companies in EMs due to privatization trends, focusing in particular on South Korea, Brazil, Chile, and Central European countries. They show that often the goals of dismantling or weakening ownership concentration and empowering minority shareholders are rarely accomplished due to weak minority shareholder protection rights. ...
... However, there exist large differences among the four BRIC countries in terms of ownership structures and shareholder treatment as shown in Aguilera et al. (2012) or in the special issue on ownership and family firms in EMs . ...
This chapter provides an overview of corporate governance (CG) in emerging markets (EMs). Focusing mainly on the BRIC countries (Brazil, Russia, India, and China), the chapter adopts a systematic cross-national comparative approach. It begins by highlighting the importance of better understanding CG in EMs, and identifies some of the key challenges these countries face as they seek to enhance their CG. The chapter goes on to review managerial research conducted after the year 2000 on CG in emerging markets in the following four categories: ownership, boards of directors, top management teams (TMTs), and CG practices and reform. The chapter discusses the main research questions and findings from this collective body of work. It is noteworthy how “siloed” this research has been in terms of drawing few cross-national comparisons. The third section offers an overview of the main CG features of each of the BRIC countries relative to one another, taking on the OECD Guidelines of CG as its benchmark framework. To do so, the chapter first addresses core governance areas related to the overall model of CG, ownership types and ownership rights, information disclosure and reporting, and stakeholder management and corporate social responsibility. The chapter concludes by highlighting common themes for CG in emerging markets and suggesting fruitful areas for future research.
... Also MSE is different because during the last decade has been implemented and improving regulation towards the investors and transparency, but also during this process MSE as whole has been losing financial performance and increased financial stress, see (Garcia, 2011) Following same line, (Aguilera, Kabbach-Castro, Lee, & You, 2011) emerging economies deals with different ownership structures compared with developed countries, local companies have been adopted new regulatory and accountability structure to assure access to future cash flows improving governance practices and transparency. ...
... What are the reasons to be deslisted? (Modigliani & Miller, 1963), (Zingales, 1995), (Mello & Parsons, 1998) Deslisted Companies Emerging Market Analysis (Wolf, 2004), (Aguilera, Kabbach-Castro, Lee & You, 2011) Research Questions Questions Is there any difference in research results using different Even Study Variants? (Ball & Brown, 1968), Investors Reactions and Delistings Reasons (Sanger & Peterson, 1990), (Sanger & McConnell, 1986), (Bharath & Dittmar, 2010) Deslisted, Emerging Markets and Event Study (Corrado & Truong, 2008) Event Rsearch Technique variations (Corrado, 1989), (Bartholdy, Oison & Peare, 2007), (Das, Saudagaran & Sinha, 2004) Results Table 5 Knowledge Creation For MSE investors did not react as excpected in typical firm deslistd process. ...
Abstract. After the adoption of new regulations in Corporate Governance practices and Transparency following the trend of international financial markets, Mexican Stock Exchange has decreased in number of public companies during the last three decades we explored a comprehensive list of delisted companies during the same period to analyze and understand the motives and reasons of the deregistration process in Mexico. Delisted companies in MSE has experienced low financial performance and unexpected stable stock prices, our results are related with systemic flaw in regulation, insider information and the opportunity to the MSE to increase in size and number of public companies.
Resumen. Después de la adopción de nuevas regulaciones enfocadas a mejor gobierno corporativo y transparencia, la Bolsa Mexicana de Valores ha seguido la tendencia mundial en ambos conceptos sin embargo el número de compañías listadas ha decrecido en las últimas tres décadas. Exploramos las razones y motivos detrás del proceso de cancelación de registro de las compañías en México durante ese mismo periodo para entender mejor su funcionamiento. Encontramos que dichas compañías han tenido un desempeño financiero bajo y un inesperado precio de la acción estable, los resultados sugieren de que es probable que exista fuga de información a nivel sistema y la oportunidad de poder hacer crecer el número y tamaño de las compañías públicas.
... This approach is used in previous research. For instance, Aguilera et al. (2012) utilize data from both financial and non-financial publicly listed firms, which reduces the market heterogeneity among companies. ...
This paper investigates whether there is a difference between business group affiliated and independent firms in terms of complying with the corporate governance principles. Based on data drawn from the corporate governance
principles compliance reports of Borsa Istanbul (BIST) companies, the results of the study show that group affiliated firms have higher compliance with the corporate governance than the independent ones in general. The difference of the mean scores in compliance with the corporate governance, stakeholders, board of directors principles between group affiliated companies and independent ones is significant. However, the mean values in shareholders and public disclosure and transparency principles do not differ between these groups of firms. This study aims to advance the research on corporate governance and business groups by considering the corporate governance differences between business group companies and unaffiliated ones in an emerging economy.
... For example, the lack of property rights protection may lead to state concentrated ownership (Pargendler, 2015). However, there exist large differences among the four BRIC countries in terms of ownership structures and shareholder treatment as shown in Aguilera et al. (2012) or in the special issue on ownership and family firms in EMs . Ownership structures tend to be pretty sticky or not to change radically over time unless there is a major transformation such as the Russian privatization in the 1990s or China's adherence to the WTO in 2001. ...
This chapter provides an overview of corporate governance (CG) in emerging markets (EMs). Focusing mainly on the BRIC countries (Brazil, Russia, India, and China), the chapter adopts a systematic cross-national comparative approach. It begins by highlighting the importance of better understanding CG in EMs, and identifies some of the key challenges these countries face as they seek to enhance their CG. The chapter goes on to review managerial research conducted after the year 2000 on CG in emerging markets in the following four categories: ownership, boards of directors, top management teams (TMTs), and CG practices and reform. The chapter discusses the main research questions and findings from this collective body of work. It is noteworthy how “siloed” this research has been in terms of drawing few cross-national comparisons. The third section offers an overview of the main CG features of each of the BRIC countries relative to one another, taking on the OECD Guidelines of CG as its benchmark framework. To do so, the chapter first addresses core governance areas related to the overall model of CG, ownership types and ownership rights, information disclosure and reporting, and stakeholder management and corporate social responsibility. The chapter concludes by highlighting common themes for CG in emerging markets and suggesting fruitful areas for future research.
... Future studies may expand the sample by applying different governance measurements like business group affiliation or family firm. Family ownership and business group affiliation are common governance characteristics in EM firms which can cause principal-principal conflicts like ownership concentration (Aguilera, De Castro, Lee, & You, 2012). The role of family control can also be studied with different approaches despite the common usage of agency theory and institutional theory. ...
This study is related to Management field with a narrow focus in international business and strategic management issues. It gives results that are provided by empirical analyses about firm-level strategic behavior and corresponds with main aims and scope of Ege Academic Review. ABSTRACT This study investigates how ownership concentration effects the ownership level and institutional environment moderates this relationship in Cross-border Merger & Acquisitions of a sample of Turkish Multinational Corporations. Proposed relationships based on institutional theory and socio-emotional wealth approach have been analyzed in a sample of 71 completed Cross-border Merger & Acquisition deals of Turkish firms between 1998-2017. Tobit regression model has been operationalized to test research hypotheses. While the findings have provided support for the positive relationship between concentrated ownership of acquiring firm and ownership level of target firm in Cross-border Merger & Acquisitions, the contextual effects of formal and informal institutions could not provide evidence for moderating impacts. These findings have implied the importance of using different theoretical approaches for distinct Emerging Market contexts like Turkey and how governance issues should be considered differently for Emerging Market firms to understand their Foreign Direct Investment decisions properly.
... Even in countries typically associated with state-owned businesses such as China, family firms are important economic actors. In other countries such as South Korea, family firms dominate economic activities but also possess government connections (e.g., a member of the family that controls Samsung is the former president of the country) (Aguilera, Kabbach de Castro, Lee, & You, 2012;Wharton, 2016). Emerging economies are not homogeneous, however, and specificities that could influence the theoretical interpretations for analyzing and predicting firm behavior and performance must be recognized. ...
While principal–principal problems are prevalent in emerging economies, the severity of these problems could vary based on the identity of shareholders and the institutional context. This study theoretically and empirically analyzes the effect of state and family blockholders as well as their possible interaction on financial firm performance in the Gulf Cooperation Council (GCC) countries. Using a dataset of 389 non-financial firms and 2607 observations (2009–2015), we found that ownership held by the state as the largest shareholder has a negative effect on firm performance, whereas this negative effect disappears when the state owns between 15 % and 50 % of shares and coexists with local families as other large shareholders. Our findings contribute to the nexus between the family business and corporate governance literature by studying principal–principal agency problems and the impact of owner combinations on firm performance in emerging economies in the GCC region.
... There is a series of factors that influence the internal and external governance (and, in the last instance, control) of a firm such as the role of managerial agency, the amount and power of blockholders, the degree of dispersion of a firm's ownership structure, legal circumstances that differ in different jurisdictions, market structures in which firms operate and more (see Gillan, 2006). In sum, ownership structures and the related question of corporate control tend to differ in different circumstances and especially in different parts of the world (Aguilera, de Castro, Lee, & You, 2012;Claessens et al., 2000). This has implications for a conceptualization of (state) corporate control on a global scale like we do here. ...
Cross-border state-led investment is a recently rising, but understudied phenomenon of the global political economy. Existing research employs an anecdotal and case-oriented perspective that does not engage in a systemic, large-scale analysis of this rise of transnational state investment and its consequences for the transformation of state power in 21st century capitalism. We take a first step at filling this gap and offer two
original contributions: Conceptually, we operationalize transnational foreign state-led investment on the basis of weighted ownership ties. These state capital ties are created by states as investors in corporations around the world. Empirically, we demonstrate our approach by setting up and analyzing the largest dataset on transnational state capital up to date. We show which different outwards strategies states as owners employ and classify states according to their relative positions within the global network of transnational state capital. Our results illustrate a crucial aspect of the ongoing transformation of state power and sovereignty within globalization and we demonstrate how a careful and data-driven approach is able to identify different pathways and dimensions of this transformation.
... This allows for a high degree of stability and exclusive control over the national corporate sector. The countries deviate heavily from the liberal standards of corporate governance that promote the control of firms by a large number of unrelated shareholders (Aguilera et al. 2012). In large emerging economies, the state, state agencies, business groups and families own the vast majority of domestic business. ...
This book systematically analyzes the economic dynamics of large emerging economies from an extended Comparative Capitalisms perspective. Coining the phrase ‘state-permeated capitalism’, the authors shift the focus of research from economic policy alone, towards the real world of corporate and state behavior.
On the basis of four empirical case studies (Brazil, India, China, South Africa), the main drivers for robust economic growth in these countries from the 2000s until the 2010s are revealed. These are found, in particular, in mutual institutional compatibilities of ‘state-permeated capitalism’, in their large domestic markets, and beneficial global economic constellations. Differences in their institutional arrangements are explored to explain why China and India have been more economically successful than Brazil and South Africa. The authors highlight substantial challenges for the stability of state-permeated capitalism and assess the potential future growth, sustainability and likely pitfalls for these large emerging economies.
Opening further avenues for empirical and theoretical research, this book raises questions for the future of the global economic order and should appeal to academics, graduate students and advanced undergraduates in politics, economics, economic sociology and development studies. It should also prove a worthwhile and provocative read for development practitioners and policy-makers.
Due to copyright restrictions I cannot provide the full text of the book. For more information see
https://www.routledge.com/State-permeated-Capitalism-in-Large-Emerging-Economies-1st-Edition/Nolke-ten-Brink-May-Claar/p/book/9780429261145
... Again, a study by Porta, Lopez-de-Silanes, and Shleifer (1999) on the firms of 27 developed countries reveals that only 30 per cent of such firms show dispersed ownership. In most of the other world economies, concentration of ownership in few hands has been a common phenomenon (Aguilera, Kabbach-Castro, Lee, & You, 2012) Putting Indian companies into perspective, it is observed that the securities of Indian companies are mostly concentrated in the hands of large promoters (Pandey & Sahu, 2017). Generally, in India, a promoter may be an individual or a Hindu Undivided Family, central or state government, corporate bodies, financial institutions, etc. ...
The study attempts to provide some fresh evidences, on the way in which ownership concentration by promoters influences firm value by re-examining two popularly known hypotheses, namely, monitoring and expropriation attached with the concept of ownership concentration. It uses a set of strongly balanced panel data consisting 91 manufacturing firms listed on Bombay Stock Exchange of India from 2009 to 2016 and employs fixed effect regression model under panel data analysis. The study documents a positive effect of concentrated promoters’ ownership on the value of Indian manufacturing firms and endorses the monitoring role played by large owners. It also accepts the possibility of co-existence of both monitoring and expropriation effects, with the former having a dominating influence, as the overall impact of large promoters is a trade-off between the benefits of active monitoring and cost of expropriation. The study is expected to have important implications in strategy making in the domain of corporate finance and governance and to act as a piece of reliable empirical evidence for the academicians and business analysts of this domain.
... Ownership and corporate governance discretion Comparative corporate governance research provides strong evidence that home country institutional contexts play a significant role in firms' ownership structure Aguilera & Jackson, 2010;Aguilera, Kabbach-Castro, Lee, & You, 2012;La Porta, Lopez-de-Silanes, & Shleifer, 1999). While much of this research is countryspecific, it offers a useful platform to examine how MNCs' multiple embeddedness across a variety of home and host countries may affect their receptivity to specific ownership-related structures, such as dual class shares or publicly versus private companies. ...
We review four decades of research about the corporate governance of multinational corporations (MNCs), which we label International Corporate Governance (ICG). We identify and discuss three main streams of research that draw on different conceptualizations and theoretical lenses of (corporate) governance. After synthesizing their respective findings, we propose several avenues for future research that integrate these three streams of research with the goal of developing a more nuanced understanding of ICG. We hope this review article will inspire international business scholars to continue examining how corporate governance can be an effective tool for MNC success.
... Ownership and Corporate Governance Discretion: Comparative corporate governance research provides strong evidence that home country institutional contexts play a significant role in firms' ownership structure Aguilera & Jackson, 2010;Aguilera, Kabbach-Castro, Lee, & You, 2012;La Porta, Lopez-de-Silanes, & Shleifer, 1999). While much of this research is countryspecific, it offers a useful platform to examine how MNCs' multiple embeddedness across a variety of home and host countries may affect their receptivity to specific ownership-related structures such as dual class shares or publicly vs. private companies. ...
In this article, we review four decades of research about the corporate governance of multinational corporations (MNCs), which we label International Corporate Governance (ICG). We identify and discuss three main streams of research that draw on different conceptualizations and theoretical lenses of (corporate) governance. After synthesizing their respective findings, we propose several avenues for future research that integrate these three streams of research with the goal of developing a more nuanced understanding of ICG. We hope this review article will inspire international business scholars to continue examining how corporate governance can be an effective tool for MNC success.
... Ownership and Corporate Governance Discretion: Comparative corporate governance research provides strong evidence that home country institutional contexts play a significant role in firms' ownership structure Aguilera & Jackson, 2010;Aguilera, Kabbach-Castro, Lee, & You, 2012;La Porta, Lopez-de-Silanes, & Shleifer, 1999). While much of this research is countryspecific, it offers a useful platform to examine how MNCs' multiple embeddedness across a variety of home and host countries may affect their receptivity to specific ownership-related structures such as dual class shares or publicly vs. private companies. ...
In this article, we review four decades of research about the corporate governance of multinational corporations (MNCs), which we label International Corporate Governance (ICG). We identify and discuss three main streams of research that draw on different conceptualizations and theoretical lenses of (corporate) governance. After synthesizing their respective findings, we propose several avenues for future research that integrate these three streams of research with the goal of developing a more nuanced understanding of ICG. We hope this review article will inspire international business scholars to continue examining how corporate governance can be an effective tool for MNC success.
... Many firms in emerging markets followed informal institutions to a greater degree. Researchers note that in the context of emerging markets there is weak institutional protection of minority shareholders' interests, the majority of firms is characterized by high concentration of ownership and control and low estimation of business value (Aguilera et al., 2012;Lin, Chuang, 2011;Claessens et al., 2002;Lins, 2003;Dolgopyatova, 2007;Commander, Svejnar, Tinn, 2008). Several authors who investigate agency problems note that in emerging markets significant problems are caused by the fact that hired managers violate their contractual obligations with the owners, including entrenchment and possible expropriation of the owner's assets by these managers (Dharwadkar, George, & Brandes, 2000). ...
... Although, in recent decades, a considerable amount of valuable pan-national work has been achieved on corporate governance (CG) (OECD, 2015 Principles), many commentators realize that it nevertheless represents an ongoing policy issue. Equally, in developing country contexts, because stakeholders have become increasingly engaged with globalized settings and market-orientated economic models, there has been a consequent need to pay enhanced attention to issues and structures of CG (Aguilera et al., 2012). In particular, since the late 1990s, this drive for improved governance has been accentuated by a number of high-profile instances of corporate wrongdoing directly in emergent economy settings (see, for example, Satyam in the Indian context). ...
Purpose
The purpose of this paper is to examine the effect of the presence of independent board directors on financial performance in India.
Design/methodology/approach
This study used panel regression models on large listed Indian firms to investigate the impact on financial performance owing to the presence of independent directors.
Findings
The findings suggest that independent board directors in Indian contexts do not significantly affect financial performance.
Practical implications
This study has implications for the formulation of regulation related to appointment of independent directors and the extent of their representation on the board for them to be effective.
Social implications
The proportion of independent directors on the board of the firm is influenced by the trade-off between the cost of having independent directors on the board versus the benefits to the firm and society.
Originality/value
The impact of the presence of an independent director on financial performance in highly concentrated ownership remains ambiguous.
... Strategic large state-owned companies 13 were privatized and the presence of foreign capital gained significance ( Carneiro, 2011;Chiarini, 2016;Laplane & Sarti, 1999;Laplane, Sarti, & Hiratuka, 2001;Sarti & Laplane, 2002). [1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001]) 119 public companies were sold, most of them from utilities sectors, especially, electricity and telecommunication ( Aguilera, Kabbach-Castro, Lee, & You, 2012). Besides, companies in strategic sectors with relatively outstanding performances were sold off: Aldrighi & Postali, 2010). ...
The essay problematizes the role of large private corporations in the configuration of the Brazilian National System of Innovation (NSI). Our question is: to what extent are the strategies and practices adopted by large companies (both domestic and MNCs) able to shape the Brazilian NSI? Our claim is that policy makers treat actions that benefit them as a sine qua non remedy to foster innovation, given that they are the main innovators in many countries that were able to catch up. However, large companies (both domestic and MNCs) may shape in a negative fashion the NSI because they are not interested neither in expanding their investments in R&D beyond a certain limit nor in cooperating to innovate beyond a certain limit, leading to what we called ‘low innovation trap’. We validate our argument using R&D data and cooperation arrangements from large businesses in Brazil. The ongoing disarticulation of the main institutions of the Brazilian NSI may be a sign that the big players of the system do not care about building institutions to provide national public goods.
... The common view that higher levels of corporate governance are associated with better operational performance could be questioned in emerging economies in which markets are imperfect and incomplete, and capital market characteristics have evolved partially without producing permanent and extensive cultural changes (Allen, 2005;Aguilera et al., 2013). Brazil exhibits such characteristics, verified by its capital market, which, despite being ranked the 12 largest market in the world, is still growing with young and large-sized listed companies. ...
Purpose
This study examines the association between the adoption of corporate governance practices and operational performance in companies listed on the Brazilian Stock Exchange.
Design/methodology/approach
The sample comprises the 80 largest companies in market value present in the IBrX-100 in 2014. Principal component and cluster analysis techniques are used to evaluate performance and capital structure, and a regression model is applied to identify the relationship between key variables.
Findings
The findings show that the incidence of a high level of corporate governance in Brazil occurs among smaller companies with less desirable operational performance, rather than the biggest (blue chip) companies. Using a regression model with the return on assets (ROA) as a dependent variable, a dummy variable for “governance”, and the size of the companies as a control variable, we find no association with good practices of corporate governance and operational performance for the companies in the sample.
Practical implications
Newer companies are more likely to exhibit a higher level of corporate governance because of the actions of foreign investors, who demand the adoption of stronger corporate governance practices. Although there is demand from wealthy local institutional investors, many older traditional firms could still restructure to achieve higher levels of governance, especially in the case of emerging economies with less mature stock exchanges
Originality/value
This study contributes to the recent debates in the literature by identifying evidence for an association between operational performance and corporate governance rather than a causal relationship.
... (Law on the Privatization of State ?Owned Enterprises, 1990; Law on National Investment Funds, 1993; Law on Commercialization and Privatization ofStateOwned Enterprises, 1996). Polish government set up a three-stage privatization process (Aguilera et al, 2012). In the first stage the commercialization of state-owned firms took place in form of three methods-initial public offering, direct sales to investors, or a combination of both. ...
... We obtain ISS ratings from 2004 to 2008 from the Aggarwal Web site (http://faculty.msb.edu/aggarwal/gov.xls). For CLSA, we collect the 2000 and 2001 ratings from Gill (2001Gill ( ), (2002. Fourth, we examine if the results are sensitive to the choice of industry classification, by using industries classified at the 3-digit and 4-digit SIC code levels. ...
... The BRICS have improved their corporate governance systems recently (Gibson, 2002;Aguilera, Kabbach-Castro, Lee, & You, 2012;Ararat & Dallas, 2011;Székely-Doby, 2011;Boubaker & Nguyen, 2014) in order to introduce international best practices; such practices should help their companies reach a leading position in global markets, acquiring the 'know-how' for advanced activities from old economies. ...
Company competitiveness in globalised markets benefits from a clear focus on sustainable growth as the basis for risk minimisation, and from the adoption of a proactive risk management model. This model requires a broad approach, intended for considering the impact of all types of risks (preventable, strategy and external risks); however, it can only be really effective when ethical principles and values are clearly defined and an appropriate compliance control exists.
The corporate orientation toward global responsibility emphasises compliance control as a prerequisite for the effectiveness of the entire risk management system. This situation is crucially important for the companies of emerging markets, which can attract international investors by complying with high and internationally recognised standards of corporate governance. In particular, compliance with the rules should not be intended only in the short term, but it should be a premise to a shared risk culture and the basis for managing any kind of corporate responsibility-related risks.
... We obtain ISS ratings from 2004 to 2008 from the Aggarwal Web site (http://faculty.msb.edu/aggarwal/gov.xls). For CLSA, we collect the 2000 and 2001 ratings from Gill (2001Gill ( ), (2002. Fourth, we examine if the results are sensitive to the choice of industry classification, by using industries classified at the 3-digit and 4-digit SIC code levels. ...
We investigate the role of country characteristics on the competition-governance relation. We find that competition is associated with higher ratings in corporate governance, but only in developing countries. Further, corporate governance is associated with greater firm value, but only in less competitive industries from developed countries. For developing countries, the evidence suggests that corporate governance is valuable mostly in competitive industries. Additional tests show that corporate governance increases labor productivity and cost efficiency, mostly in less competitive industries in both developed and developing countries. Furthermore, in developing countries, corporate governance increases investment in capital, but primarily in competitive industries.
... In 2004, of the 59 companies listed on the Prague stock exchange, 80% had a majority owner (Roubíčková, 2006, in Hučka et al., 2012. In the period of 2003 to 2008, in 71 Czech companies, the average share held by the largest shareholder was 56.7%; the share held by the three biggest shareholders was 80.7%, which is higher than the same statistic in Hungary or Poland (Aguilera et al., 2012). Brzica (2006), among others, provided a comparison of the Czech and Slovak Republics and confirmed the ever-growing trend of ownership concentration. ...
This paper seeks to examine the effect of ownership concentration on corporate financial performance in the Czech Republic. The study uses linear regression models and analyses data gathered from medium and large businesses in order to test the aforementioned relation.
Using data from a sample of over 5,000 Czech businesses between 2010 and 2012, the study finds that ownership concentration expressed as the Herfindahl index has a weak, but statistically significant negative effect on corporate performance represented by return on assets. However, the data do not conclusively reveal whether the effect is monotonic or inverted U-shaped.
... PFFs have a number of advantages over other publicly listed firms in EMs, such as state-owned enterprises , firms controlled by financial institutions, and locally listed subsidiaries of foreign multinationals (Acquaah, 2012;Aguilera, de Castro, Lee, & You, 2012;Carney & Child, 2012). First, due to their long-term orientation , PFFs can stay on course towards realizing their strategic goals even under conditions of high political uncertainty and economic upheaval, which are common for many EMs (Henisz & Zelner, 2010). ...
... PFFs have a number of advantages over other publicly listed firms in EMs, such as state-owned enterprises , firms controlled by financial institutions, and locally listed subsidiaries of foreign multinationals (Acquaah, 2012;Aguilera, de Castro, Lee, & You, 2012;Carney & Child, 2012). First, due to their long-term orientation , PFFs can stay on course towards realizing their strategic goals even under conditions of high political uncertainty and economic upheaval, which are common for many EMs (Henisz & Zelner, 2010). ...
We provide an institution-based theory explaining the substantial performance differences of publicly-listed family firms (PFFs) across emerging economies. We test this theory through a meta-analytic study, drawing on a dataset of 1,401 effect sizes harvested from 177 primary studies nested in 49 emerging economies. Our observation window spans the crucial period between 1973 and 2011, in which many emerging markets underwent rapid institutional changes. While our results show a small but significantly positive overall association between family control and firm performance in emerging market contexts, the cross- country variability in this relationship is very substantial. In order to explain this variability, we introduce a new typology for partitioning institutional effects, based on juxtaposing two salient dimensions of institutional development: formal versus informal, and constraining versus enabling institutions. This typology serves as the conceptual framework for our institution-based theory, which integrates several substantive theories to explain the relative out- or underperformance of PFFs in specific emerging market contexts. Our findings show that the performance of PFFs is stronger where formal constraining institutions are underdeveloped, but poorer where formal and informal enabling institutions as well as informal constraining institutions are weak. Overall, these results demonstrate that family firm profitability in emerging markets is predictably conditioned by institutional factors.
... Developing countries have concentrated ownership. (Aguilera et al., 2011) A majority of top listed companies are family businesses. According to Sarkar (2012), promoters control a majority of listed companies in India. ...
We study 288 family firms included in the NSE CNX 500 index of the National Stock Exchange of India. We find an entrenchment-alignment-entrenchment relationship between family ownership and firm value. We show that family CEO has a negative moderating effect on the relationship between family ownership and firm value. When the interaction effect of Family CEO on family ownership is controlled, only family shareholding in the alignment range is found to be statistically significant. The study shows that family firms with family CEO suffer from a decrease in market valuation. This finding is extremely valuable given the fact that India is dominated by family firms and majority of family firms appoint a family member as CEO.
... Other studies have also analyzed the corporate governance of emerging markets according to the different ownership patterns across the countries (Aguilera, Kabbach-Castro, Ho Lee, & You, 2012); besides, some scholars have investigated how better corporate governance frameworks benefit firms through greater access to financing, lower cost of capital, better performance, and more favorable treatment for all stakeholders (Claessens & Yurtoglu, 2013). ...
To be successful in global markets, companies from the emerging countries need the approval of foreign investors and other stakeholders. In this regard, Brazil, Russia, India, and China (BRIC) have progressively strengthened their corporate governance rules to help their companies overcome the competitors from the old industrialized countries. Directors' non-executive qualification, independence, and professional expertise represent basic requirements for effective corporate governance, so they should be carefully considered to guarantee a proper board composition and an adequate establishment of internal committees in listed companies. The paper intends to compare the legislative and regulatory frameworks adopted by the four countries; then it aims at answering to the following research questions by means of an empirical investigation: Have BRIC companies appointed non-executive and independent board members? What do BRIC companies do in order to assure an effective participation of non-executive and independent board members to corporate governance activities? Have BRIC companies established internal committees? The research examines the appointment of non-executive directors and independent directors to the boards of 100 BRIC leading firms, as well as their involvement in internal committees focused on matters requiring motivated and impartial opinions. Although the laws and recommendations seem to favor a general convergence of corporate governance principles among the four BRIC and towards the international best practices, some differences and peculiarities emerge from a firm-level perspective. Indeed, the Indian and the Chinese companies analyzed appear more inclined than the Brazilian and the Russian ones to reassure their international stakeholders about board independence and effective committees.
... We obtain ISS ratings from 2004 to 2008 from the Aggarwal Web site (http://faculty.msb.edu/aggarwal/gov.xls). For CLSA, we collect the 2000 and 2001 ratings from Gill (2001Gill ( ), (2002. Fourth, we examine if the results are sensitive to the choice of industry classification, by using industries classified at the 3-digit and 4-digit SIC code levels. ...
We investigate the empirical relation between competition and corporate governance and the effect of country characteristics on this relation. We find that competition is associated with strong corporate governance, but only in less developed countries. We next examine the impact of corporate governance on firm value given the level of competition. We find that competition and corporate governance appear to be complements in explaining firm value in developing countries, while in developed countries they are substitutes.
The audit results of the Indonesian Financial Audit Agency for eight consecutive years in the province of East Kalimantan, which has ten districts and cities, showed that they are an unqualified opinion (UQO). Based on this information, the researchers became curious and wondered what strategy the regional government was implementing so that over the next year in a row, the majority of the Republic of Indonesia Financial Audit Agency (FAA) audit results would achieve an UQO. This research aimed to assess the extent of the strategy adopted by the regional government of Kalimantan province in obtaining an unqualified opinion on the results of audits conducted by the government’s external auditor, in this case the Supreme Audit Office of the Republic of Indonesia and what methods were adopted to maintain the sustainability opinion (SAU). This research used a qualitative method with the Fishbone Model, which was followed by interviews with the Head of the Regional Financial Management Agency in each district and city and the province of East Kalimantan, as well as each Head of Division, Head of Section, and Staff in charge of Regional Accounting and Finance from each head. The research results show that the participation of all components is a central element in UQO. This shows that the results of the audit from the Indonesian Financial Audit Agency have had an impact on public trust in the financial accounting management of regional governments in the Kalimantan province. The main findings of this study are as follows. First, from the aspect of the method, the authors have never found research entitled like this article, using a Qualitative Approach with the Fish Bone Model, then elaborated into sixteen elements.
From a second image perspective, the financialized US model of a liberal market economy had a major influence on the postnational global financial order. For example, it has deepened this order via US influence on the policy prescriptions of the World Bank and the International Monetary Fund. It also had an important influence on questions of the regulation of global finance, both concerning the (liberal) content and the (private) mode of regulation. From a second image reversed-perspective, the US-led financialization of the global economy has had a substantial influence on non-liberal models of capitalism. For example, it has contributed to the erosion of the traditional system of the German coordinated market economy via the influence of institutional investors and the introduction of fair value accounting standards. Similarly, transnationally mobile capital has contributed to the destabilization of state-permeated capitalism inn Brazil, via strong currency appreciation and devaluation.KeywordFinanceLiberal market economyCoordinated market economyFinancializationAccounting standardsMobile capital
This chapter sets out the concept of corporate "governing", as an ongoing change process of institutions associated with corporate governance. This institutional evolution is then reviewed through academic lenses provided by international research on the subject, explaining how governance can best be understood in terms of current theoretical frameworks, namely: New Institutional Economics (NIE), Resource Dependence Theory (RDT) and Institutional Theory (IT). These approaches are then used to reflect on the findings of each of the six country chapters, concluding with their theoretical and practical implications.
Corporate governing refers to practices, theories, and dilemmas associated with the challenges of directing and controlling organizations (Bevir, M. (2011). Governance as theory, practice, and dilemma. The SAGE handbook of governance, 1–16) in short governing them. Special emphasis is placed on the allocation of rights to information and decision-making among shareholders, board membersBoard, and the management team. The final purpose is to set the balance of empowerment and accountabilityAccountability to drive toward value creation by corporate leaders (directors and managers), while protecting the equitable distribution of the value created between internal and external stakeholdersStakeholder/s (Huse, 2009).
Purpose
This paper aims to examine the effect of corporate integrity and external assurance on Sustainability Reporting Quality (SRQ) of Malaysian public listed companies.
Design/methodology/approach
The study uses a longitudinal sample of 2,463 firm-year observations of non-financial firms listed on the main board of Bursa Malaysia from 2015 to 2019. The study employed panel regression that is, Fixed Effect (FE) Robust Standard Error estimation technique to test its hypotheses.
Findings
The panel regression results reveal that corporate integrity and external assurance positively and significantly influence the quality of sustainability reporting. Though the positive association shows an improvement in the SRQ of the sampled firms, it needs an improvement as the disclosure is more general and qualitative than quantitative. The present improvement in SRQ might result from some regulatory changes like the Sustainability Practice Note 9 Updates of Bursa Malaysia 2017 and the Revised MCCG Principle A to C within the same period.
Research limitations/implications
The study adopts a purely quantitative approach and call for a qualitative investigation in the area in the future.
Practical implications
The study has policy implication for the government and regulators to strengthen compliance with the sustainability reporting guide and the Practice Note 9 Updates. It also has implication for corporate integrity and external assurance for companies, to enhance SRQ and achieve sustainable development.
Originality/value
The study bridged literature gaps by offering new insights and empirical evidence on the role of corporate integrity in SRQ, which has received no empirical attention in the Malaysian context.
Purpose
This study aims to examine the influence of corporate governance (CG) mechanisms and ownership structures on corporate governance disclosure (CGD) in listed Mauritian companies.
Design/methodology/approach
Multivariate regression techniques, both static and dynamic panel data models, were employed to analyse the effect of the determinants on the CGD level of 42 Mauritian listed companies (38 non-financial and four financial firms) from 2009 to 2019.
Findings
In the static model comprising 42 firms, CG attributes such as board size, board meeting frequency, CG committee meeting frequency and audit committee meeting frequency are major determinants of CGD, whereas ownership structure variables such as managerial ownership and institutional ownership do not influence CGD. In the dynamic model, only the CG meeting frequency is a major determinant. The determinants of CGD vary between non-financial and financial firms.
Research limitations/implications
This study is limited to CGD in listed firms, excluding mandatory disclosures and unlisted firms. Future research can use qualitative approaches to better understand CGD behaviour with an extension to mandatory disclosures and non-listed firms.
Practical implications
Policymakers can rely on determinants to draw policy measures to raise CG standards further. Domestic and foreign investors may also depend on the determinants of their expectations of CGD while making investment and credit decisions.
Originality/value
This study contributes to the extant literature by examining a new determinant of CGD: CG committee meeting frequency. It also investigates any differences in the determinants between financial and non-financial firms with different listing status.
This chapter presents the book’s main theoretical contributions. First, it frames the question about the origins of private equity markets within the broader literatures on financial development and corporate governance reform. Private equity provides firms with a distinctive source of financing that is otherwise elusive in the developing world. It combines three characteristics: it is risky, institutional, and—at least relative to other financial investors—patient. Second, it contrasts rules-based arguments about capital market development centered on investor protections with the book’s more direct focus on institutional investors. Third, it discusses different hypotheses regarding the sources of corporate governance reform and presents a “quiet politics” approach centered on the role of industry associations. And fourth, it updates the literature on the role of the state in finance and characterizes a novel model for financial productive policymaking.
The corporate ownership and control literature (Dai & Helfrich, 2016; Aminadav & Papaioannou, 2016) has reported inconsistent findings in varieties of capitalism. The limited scholarship in developing economies has contributed to this problem, as much of the research in this field focus on developed economies. Thus, this paper primarily reviews the corporate ownership and control literature in Africa’s largest economy (Nigeria) and identifies future research directions. The article commences by undertaking an overview of corporations in Nigeria, followed by a discussion of corporate ownership in the country. The paper then assesses the market for corporate control in Nigeria, unpacking the major issues that frustrate the protection of minority shareholders’ rights in the country. The paper concludes by evaluating the relationship between corporate ownership and firm performance to promote a better understanding of the prevalence of concentrated ownership in the country’s corporate environment. In summary, this article recaps past works, integrates contemporary thoughts, and proposes new scholarly and contextual directions that researchers could explore to deepen the existing knowledge about corporate ownership and control.
The fundamental dichotomy between dispersed and focused ownership system has been a critical issue in the field of corporate governance. The concentrated ownership mainly controlled by families or state give more supremacy to firms over cash-flow rights. This study investigates the ownership structure of Indian corporates primarily vested in the hands of promoter and promoter groups. Using ordinary least square estimates, the study identifies the determinants of concentrated ownership structure. Further, the study attempts to provide evidence on the convergence of the controls in Indian firms, and thereby assess the wealth concentrated amidst few. The findings of the study reveal contrasting evidence against widely affirmed notion in finance literature by Berle and Means (1932) that widely held firm is the organizational framework of large enterprises. In contrast, our findings reveal that concentrated ownership holds large corporations. Moreover, in addition to the constituents such as firm size, the number of stock markets and geographic ownership also contribute towards a significant impact on concentrated ownership.
Economists since the First Industrial Revolution have been interested in the links between economic growth and resources, often pointing to resource scarcities as a hindrance to growth. Offering a counter perspective, this volume highlights the positive role that scarcities can play in inducing technical progress and economic growth. It outlines a structural framework for the political economy of scarcity and rents, and offers a novel way of organizing the evidence concerning the role of resources in industrial growth. This book proposes a major shift in the treatment of scarcity issues by focusing on bottlenecks and opportunities arising within the production system, and will appeal to economists and policy makers interested in the role of resources as triggers of structural change.
Manuscript type
Empirical
Research Question/Issue
This study investigates the interplay between country‐level governance quality and the capital structure choice at the firm level in Brazil and Chile. We examine the association between a firm's ownership concentration and its debt maturity structure and whether country‐level governance quality influences this association.
Research Findings/Insights
Using a large firm‐level dataset from Brazil and Chile for the period 2008–2013, we find a positive association between low ownership concentration and debt maturity. However, this association becomes negative when the largest shareholder has high ownership concentration. This result suggests that long‐term debt and ownership concentration act as substitute monitoring mechanisms. Moreover, debt maturity is inversely related to our aggregated index of country‐level governance quality, suggesting that in countries with governance systems that effectively protect debt holders, firms with high benefits of control (high ownership concentration) will use debt with shorter repayment periods in order to benefit from frequent monitoring by debt holders. Overall, our results support the view that financial markets tend to pressure firms with high benefits of control or greater agency conflict to make a tradeoff between the benefits of control and the cost and maturity structure of debt financing.
Theoretical/Academic Implications
This study contributes to the research on comparative corporate governance and capital structure. We also respond to recent calls to bridge the gap between under‐ and over‐socialized views of corporate governance by examining the interplay between firm‐ and country‐level governance variables. Our findings suggest a substitution effect between monitoring by equity holders and by debt holders, and that country‐level governance quality exerts a disciplinary influence over a firm's choice of debt maturity structure.
Practitioner/Policy Implications
Investors seeking to enter emerging markets such as Brazil and Chile can benefit from considering national governance factors that enhance debt holders’ external monitoring effectiveness. Because our findings show the importance of considering and improving the quality of country‐level governance, they are also useful for policy makers aiming to reform corporate governance practices in emerging markets.
This chapter assesses what is known about the likely role of corporate governance reforms and best practices as an antidote to commercial and political corruption in emerging markets. The purpose of the assessment is to marshal knowledge about the relationship between corporate governance and corruption and to help identify best practices with respect to anti-corruption efforts. The methodology combines literature review and identification of sources of information and data about corporate governance and anti-corruption measures. The scope of the chapter includes corporate governance norms promoted by international institutions, effects of foreign direct investment, and interactions among quality of government, quality of corporate governance, and corruption levels and forms. The vital issue is whether and if so how and to what extent corporate governance reforms and best practices will operate to reduce corruption in emerging markets. General findings are that corporate governance best practices are desirable for several reasons, and such best practices, in combination with business integrity and governmental anti-corruption efforts, should operate gradually against commercial and political corruption. Effectiveness of governance and anti-corruption measures depend on personal integrity of business directors and executives. Structural measures typically recommended in corporate governance codes are not well linked to anti-corruption effectiveness.
The growing importance of Brazil, Russia, India, and China in the global economy is reflected in the increasing weight of their companies in Fortune Global 500 rankings. Gaining greater knowledge of the characteristics of large firms that dominate the global economy is inherently an important endeavor. Uneven access to data and information makes understanding the strategy, structure, ownership, and performance of large business an ambitious program of research. When it comes to the analysis of the BRICs, limitations are even greater. The BRIC economies are different from each other and this is also true as far as the heights of their respective business worlds are considered. But they also share some crucial features: concentrated ownership, with governments and families at the helm, diversification, and internationalization. This edition first published 2013
The purpose of this paper is to investigate the relationship between working capital management efficiency and performance of construction companies listed in the Kuwait Stock Exchange. The relationship is examined using dynamic panel data two- steps robust system estimation for the period 2001-2013. The analysis is applied at all the levels of the full sample as well as at the divisions’ levels of the sample by crisis and non-crisis periods, and by size. The results show negative and significant relationships between net trade cycle as a comprehensive measure of the efficiency in working capital management and performance for large firms during the full sample period while the relations between net trade cycle and performance for small firms are insignificant. This indicates that large construction companies in Kuwait are more efficient in managing their working capital than the small companies.
In this article, I aim to investigate major emerging markets (BRICK [Brazil, Russia, India, China, South Korea] countries and Turkey) in terms of governance practices, which differ in many ways including board structures, board procedures, disclosures, audit committee meeting frequency, ownership structures, and minority shareholder rights. Moreover, I aim to relate these governance practices to the impact they have on financial structures in terms of financial profitability and financial leverage. Findings provide support for the notion that board independence, representation of women on the board, duality, and the number of board meetings are key factors in determining corporate governance efficiency and play important roles in enhancing firm financial structure in BRICK firms. I also attempt to identify the main issue in corporate governance research, which is whether governance practices are universal or instead depend on country and firm characteristics. These multicountry results, together with the view of common- and civil-law differentiation, suggest that country characteristics strongly influence the aspects of governance practices while predicting firm financial structure.
Gaining greater knowledge of the characteristics of large firms that dominate the global economy is an inherently important endeavour. Brazil, Russia, India and China (the BRIC economies) have gained influence in the global economy and this is reflected in the increasing weight of their companies in Fortune Global 500 rankings. Uneven access to data and information makes understanding the strategy, structure, ownership and performance of large business an ambitious programme of research. The BRIC economies are different from each other and this is also true as far as the heights of their respective business worlds are considered. But they also share some crucial features: concentrated ownership, with governments and families at the helm, diversification and internationalisation.
The OECD Principles of Corporate Governance are a networked form of governance predominantly aimed at the law-makers and firms of emerging markets. This chapter discusses whether the approach of the OECD Principles can be regarded as a success. Our analysis provides a mixed response. While features of networked governance are clearly visible in the drafting and operation of the Principles, the practical effectiveness may be hindered by the lack of well-functioning local institutions. Moreover, while appreciating that the OECD has engaged in activities such as regional roundtables in order to take account of the local context, the Principles themselves are based on the corporate governance model of the OECD member countries not perfectly suitable for emerging markets. Recent events also point towards scepticism of whether adoption of the Principles can be seen as an effective way to prevent future financial crises.
Different countries are having different corporate governance systems. For instance, in U.K. and U.S., it is understood that the threat of takeover of the company is a factor which ensures that the managers have to act in the promotion of the interests of the shareholders. In the countries like Germany, France and Japan, it is understood that the financial institutions like banks act as monitors for the corporate governance. But neither of the systems is fool-proof. At the same time, it may be argued that the competition among the corporations can act as the most efficient mechanism for ensuring the corporate governance. It affects the productivity of a firm in a positive manner. Stiff competition in the product market ensures that the management does not avoid its responsibilities; even if its internal monitoring is weak. Competition ensures that the management lethargy is less and less. It can definitely be claimed that competition provides a benchmark for measuring the performance of a company from inside, i.e. the management. The managers are forced to rely on high performance; otherwise they may end up in bankruptcy or closer. Competition induces the managers to put greater efforts for the purpose of costs reduction so as to avoid any possibility of being bankrupt. The aim of this paper is to show as to how the interaction of product market competition with corporate governance variables affects the performance of a corporation. The aim is show that how the competition in the product market can act as an externality to the corporate governance, and act as a check on the exercise Manager's discretionary power. There is no doubt that there is a perfect linkage between the internal governance mechanism and the performance of a corporation. But it has to be remembered at the same time that the external governance mechanisms including competition, as also of vital importance, though there has been a very little attention given to the interaction between internal and external governance mechanism in emerging market economies. Here the paper hastried to show the independent and interaction effect of ownership and competition variable on firm level productivity. This paper is advancing a study of the linkage between the product market competition and the corporate governance and the resulting effect on productivity and efficiency level of the corporation in the light of an emerging market economy.
Este artigo discute a privatização sob o ponto de vista da análise organizacional. Empreende um exame das abordagens científicas da privatização e em seguida propõe um modelo de análise de empresas privatizadas, elaborado numa perspectiva multidimensional a partir de variáveis tratadas pelas ciências humanas e sociais. Ao final, apresenta uma aplicação inicial desse modelo tomando como base os casos do Canadá e do Brasil.
We propose new measures to describe the ownership structure of family business groups that go beyond the standard measures of cash flow and voting rights. Our measures include the degree of pyramiding in the ownership structure of a group firm, and the centrality of a firm for the group structure (e.g., whether a given firm is used by the family to control other group firms). We use a unique dataset of Korean family business groups (chaebols) to provide evidence that relates these new ownership variables to the performance and valuation of group firms. In particular we show that firms with high investment requirements and/or low profitability are more likely to be set up in pyramids (a selection effect). In addition, central firms appear to have lower market valuations than public group firms that do not hold large equity stakes in other group firms. Our results suggest that cash flow and voting rights are not the only ownership variables that are associated with performance and valuation of group firms. The results also support Almeida and Wolfenzon's (2006) arguments that the family selects pyramidal ownership to take advantage of the cash retained in the central firms of the group, and that pyramidal investments are not beneficial for the minority shareholders of the central firms (who discount the value of their shares accordingly).
This paper focuses on the ownership and voting structures of limited liability companies in Brazil over the period 19972002. Its main contribution lies in measuring the magnitude of deviations between control rights and cash-flow rights for the ultimate shareholder with the largest voting rights. Furthermore, it pinpoints how these discrepancies are generated, evaluating the relative importance of the issuance of preferred stocks with no voting rights, voting agreements, pyramidal arrangements of ownership, and cross-shareholdings. The data set embraces 4,478 reports that companies, complying with a mandatory requirement, filed to the CVM over that period.
Although the Brazilian privatization program has been a sweeping endeavor involving more than 100 firms and billions of dollars, most of the studies have been published only in Brazil, and in Portuguese. This paper is the most comprehensive study to date in terms of the companies covered, and includes the most recent data. It looks at the results of privatization in Brazil for a broad range of economic variables to answer the question: Has the widespread popular discontent with the program been justified? The paper also examines the effects of privatization on aspects that affect the development of financial markets, including minority shareholder rights. It concludes with recommendations for democratizing capital ownership through public offers in which workers would be entitled to participate using public sector liabilities such as FGTS deposits.
The transition from socialism to capitalism in former socialist economies is one of the main economic events of the twentieth century. Not only does it affect the lives of approximately 1.65 billion people, but it is contributing to a shift in emphasis in economics from standard price and monetary theory to contracting and its institutional environment. Economic research in transition shows not only that institutions matter but also how their evolution toward higher efficiency depends on initial conditions and on sustained political support. Unlike early policy literature on transition economics, which focused on the so-called Washington consensus, this book provides an overview of current research, analyzing issues raised by transition for which economic theorists and policy makers had no ready answers. It shows how research on transition contributes to our understanding of capitalism as an economic system and of the dynamics of large-scale institutional change. The book is divided into three parts. The first part looks at how large-scale reforms are decided dynamically through the political process. The second part looks at the general equilibrium and macroeconomic effects of liberalization in economies without preexisting markets. The third part looks at the economic behavior of firms in the transition from state to private ownership and compares the effects of privatization, restructuring, and financial reform. Although focused on transition economics, the discussions are relevant to topics in political economics, development, public economics, corporate finance, and micro- and macroeconomics.
We study the evolution of Korean chaebols (business groups) using ownership data. Chaebols grow vertically (as pyramids) when the controlling family uses well-established group firms (“central firms”) to acquire firms with low pledgeable income and high acquisition premiums. Chaebols grow horizontally (through direct ownership) when the family acquires firms with high pledgeable income and low acquisition premiums. Central firms trade at a relative discount, due to shareholders’ anticipation of value-destroying acquisitions. Our evidence is consistent with the selection of firms into different positions in the chaebol and ascribes the underperformance of pyramidal firms to a selection effect rather than tunneling.
We examine the separation of ownership and control for 2,980 corporations in nine East Asian countries. In all countries, voting rights frequently exceed cash-flow rights via pyramid structures and cross-holdings. The separation of ownership and control is most pronounced among family-controlled firms and small firms. More than two-thirds of firms are controlled by a single shareholder. Managers of closely held firms tend to be relatives of the controlling shareholder's family. Older firms are generally family-controlled, dispelling the notion that ownership becomes dispersed over time. Finally, significant corporate wealth in East Asia is concentrated among a few families.
Corporate governance, in a broader sense (that is not limited to the principal-agent problem), is an opportunity to describe and analyze the successes and failures in 12 years of efforts aimed at overall institutional change, the transformation of the economic system and its outcomes for the whole economy. The notion of corporate governance enables us to identify actors as stakeholders in the transformation process (state, banks, enterprises, managers, trade unions, and other institutional actors) and to trace their motivation. This broader understanding of institutional and formal relations among shareholders associated with companies and understanding of networks created by these actors can contribute to formulating and identifying their strategies. Moreover, the influence of institutional changes on strategy formulation at the enterprise level, including enterprise restructuring, can be discussed in the framework.1
Chilean business groups tend to be structured as a collection of listed and non-listed companies presenting highly concentrated ownership and hanging under a listed holding company. These characteristic pyramidal structures are used to obtain funding from minority shareholders without losing control. Many of the large companies affiliated to Chilean business groups have traded in a relatively developed capital market with a considerable participation of institutional investors since 1986. Most Chilean business groups are relatively young and are successfully run by the second or third generation of the founding families. However, in some cases, control has passed to teams of executives and to foreign companies. This article looks at the main features of Chilean business groups and tries to find some stylized factors that help in an understanding of their dynamic evolution.
The Oxford Handbook of Business Groups provides a comprehensive analysis of business groups around the world. Business groupslarge, diversified, often family-controlled organizations with pyramidal ownership structure, such as the Japanese zaibatsu, the Korean chaebol and the grupos econmicos in Latin Americahave played a significant role in national economic growth, especially in emerging economies. Earlier variants can also be found in the trading companies, often set up in Britain, which operated in Asia, Africa, and Latin America. Business groups are often criticized as premodern forms of economic organization, and occasionally as symptomatic of corrupt crony capitalism, but many have shown remarkable resilience, navigating and adjusting to economic and political turbulence, international competition, and technological change. Sixteen individual country articles deal with business groups from Asia to Africa, the Middle East to Latin America, while overarching articles consider the historical and theoretical context of business groups.
Recent years have seen a flourishing of interest in the economies of the BRICs and their growing role as producers and intermediate rank powers in the global economy (Goldman Sachs, 2003; Humphrey and Messner, 2006). Although often taken as a single group, they have taken different paths, with China and India on the one hand and Brazil, Russia, and South Africa on the other. The objective of this chapter is to analyze the emerging Brazilian multinationals, with special reference to how the national context affected the evolution of those firms. Two distinct approaches will be combined to achieve that aim. The first provides historical perspective; the second defines the conceptual framework that will be utilized in the analysis of selected cases. After WWII, Brazil performed differently in relation to the three main waves of internationalization. In the first wave, in the 1950s and 1960s, Brazil was essentially a receiver of FDI, hosting new subsidiaries of foreign MNEs. During the second wave, in the late 1970s and early 1980s, isolated attempts by native Brazilian firms to move into international markets were observed. “The so-called Third World Multinationals (non-financial) in Brazil,” it was noted, “are still at a rather incipient stage where the number of firms is concerned and as a percentage of the total value of exports … construction and engineering firms predominate. Manufacturing firms are moving at a much slower pace, though one group has recently announced ambitious plans” (Villela, 1983, p. 267).
Ben Schneider’s comparative historical analysis of the incorporation of business into politics in Latin America examines business organization and political activity over the last century in five of the largest and most developed countries of the region. Schneider’s explanation for why business became better organized in Chile, Colombia, and Mexico than in Argentina and Brazil, lies neither in economic characteristics of business nor broader political parameters, but rather in the cumulative effect of state policy actions.
As in many other countries, business groups in Brazil are typically owned by families and owe much of their evolution and weight in the national economy to government policies. Nonetheless, their structures and strategies seem to present some idiosyncrasies. Focusing on the context wherein business groups in Brazil emerged and have evolved, this article endeavors to shed some light on why their structures and strategies exhibit some peculiarities. As a rule, the current main Brazilian business groups typically originated before 1960; were either founded or strongly supported, through various types of subsidies, by the state; have one ultimate controlling shareholder owning a great number of firms through pyramidal schemes; started to target more systematically export markets only in the 1970s and 1980s; and only after 1990 have pursued a strategy of direct investment abroad.
The focus of many corporate governance inquiries might be specific to particular subfields-determinants of ownership structures, legal protection of minority shareholders, impact of the market for corporate control, and many others-but questions and insights about the role of institutions are present across disciplinary boundaries. This article is structured around the three most prominent theoretical perspectives in the analysis of comparative corporate governance: law and economics, sociology, and politics. It proceeds to review their contributions to the analysis of diversity in both institutional arrangements and outcomes across national systems of corporate governance. These approaches are also characterized by substantial internal diversity on the role of institutions-thereby increasing the analytical variety of inquiries. The article concludes with a section that deals with the place of economic incentives and rationality in the joint interaction between institutions and interests for these three theoretical perspectives.
This chapter attempts to explain under which circumstances political embeddedness (PE) leads to the emergence of sustainable markets. The question is of more than academic interest: after all, if PE does result in functioning markets, then we can expect it to become entrenched in the institutional architecture of the business system of China. The analytical tool 'imported' into the concept of PE is Market Design, the findings of which allow us to specify criteria for the development of functioning markets. Using these criteria, three cases are analysed. The first case is the wellknown example of Township and Village Enterprises (TVEs), in which the political embeddedness of TVEs resulted in the emergence of a competitive sustainable market. The second case takes the public utility sector as an example in which PE resulted in ill-functioning markets because private investment could not be mobilized. The third case, which takes Enterprise Bankruptcy Law (EBL) as its example, deals with the question of whether attempting to embed firms within the law is actually a move away from PE, or whether PE and the law supplement each other. The example of the insolvency law (EBL) is also used to enquire whether a 'marketplace' for legal services such as court-mediated arbitration and litigation is emerging, and whether it can be expected to function within PE. The findings suggest that PE contributes to the development of functioning markets only in certain conditions: when the use of informal norms aligns the interests of all parties involved, and when decision-making rights are uncontested, and when there is equivalence between the spatial dimension of the market and the spatial dimension of political embeddedness.
This paper is a survey of the literature on boards of directors, with an emphasis on research done subsequent to the Benjamin E. Hermalin and Michael S. Weisbach (2003) survey. The two questions most asked about boards are what determines their makeup and what determines their actions? These questions are fundamentally intertwined, which complicates the study of boards because makeup and actions are jointly endogenous. A focus of this survey is how the literature, theoretical as well as empirical, deals-or on occasions fails to deal-with this complication. We suggest that many studies of boards can best be interpreted as joint statements about both the director-selection process and the effect of board composition on board actions and firm performance.
Corporate governance scholarship has shifted focus in recent years from hostile takeovers, which occur primarily in the widely held shareholder systems of the United States and the United Kingdom, to the comparative merits of the "controlling shareholder" systems that are the norm most everywhere else in the world. In this emerging debate, the simple dichotomy between controlling shareholder systems and widely held shareholder systems that has largely dominated the discourse is too coarse to allow a deeper understanding of the diversity of ownership structures in different national capital markets and their policy implications. In this Article, Professor Ronald Gilson seeks to complicate the prevailing analysis of controlling shareholders and corporate governance by developing a more nuanced taxonomy of controlling shareholder structures and examining the implications of this view on our understanding of widely held and controlling shareholder systems. Development of a new taxonomy begins with recognition of the controlling shareholder tradeoff: focused monitoring in return for some private benefits of control and at a cost in speed of adaptation. Building from this tradeoff, this Article looks closely at two central features of a more complex taxonomy: the concepts of controlling shareholders and of private benefits of control. In particular, the framework highlights the value of distinguishing between efficient and inefficient controlling shareholder systems, and between pecuniary and nonpecuniary private benefits of control. Together, the two distinctions reframe the taxonomy of shareholder distribution to distinguish between regimes that support companies with a diversity of shareholder distributions and regimes that support only companies with a controlling shareholder. This Article concludes by examining potential macroeconomic effects and policy implications and calling for research under this new framework to further the debate on controlling shareholder systems.
For the past several years, Hungary and other nations of Eastern Europe have embarked on programs to achieve large-scale privatization. An examination of the implementation effort in Hungary demonstrates some success, but also substantial difficulties. Theories about policy implementation as developed in the West are of limited use in interpreting the dynamics of change currently underway in Hungary. Implementation in such settings is complicated by the nearly simultaneous differentiation and coevolution of public and private sectors, basic constitutional choices on allocation of governmental responsibility between central and local levels, and determination of the role of neutral and expert public service in the regime. The case points to the contextuality of extant implementation theories and their implicit links to a set of assumed constitutional characteristics largely absent now in transitional settings. More generalizable theory of policy implementation is dependent on analyzing the connections between the details of implementation and issues of basic constitutional choice. © 1994 by The Journal of Public Administration Research and Theory, Inc.
This book explores the strategies that chaebols--Korean business groups--have pursued by examining their structures and assessing their performance. It highlights the strengths of chaebols that enable their fast growth, as well as the weaknesses that waylaid them when the 1999 Asian crisis occurred. Sea-Jin Chang asserts that the Korean government's restructuring efforts have not been successful and demonstrates why measures that overhaul chaebols' financial structures and strengthen their systems are necessary. He predicts that they will emerge again as stronger, more focused global players.
Abstract will be provided by author.
Latin American Politics & Society 47.4 (2005) 193-196
As the title of this book suggests, its focus is the political behavior of business associations in Latin America; more precisely, in Argentina, Brazil, Chile, Colombia, and Mexico. The book aims to explain two interrelated questions: why business associations in these countries have evolved widely different organizational strengths and bargaining power versus government, and what the consequences of such variations have been. These are very important questions that, in the past, have been analyzed at the country-specific level but have usually received little comparative attention.
In chapter 1, Ben Ross Schneider lays out his thesis, postulating that the strengths or weaknesses displayed by business organizations over time were determined primarily by government intervention. This, he asserts, was particularly true in times of severe socioeconomic crisis, when governments felt vulnerable and granted business organizations selective incentives (participation in policy design, monopolistic representation over specific business matters, special access to government funds) in return for political support. Conversely, when existing business associations could be a menace to the interests of a given administration, government officials engaged in divide-and-conquer strategies that atomized and debilitated business organizations in the long run. State "vulnerability," for Schneider, is driven mostly by exogenous factors, such as the consequences of the Great Depression and World War II, but occasionally also can be endogenous, such as the capital flight from Mexico when the local authority in 1987 gave businesses incentives to keep their money at home.
In chapter 2, Schneider compares the strength of his argument and its contribution to the existing literature. His theoretical argument challenges a large amount of the literature based on Olson's thesis, according to which the state is prey to the interests of distributional coalitions, which manage to accrue political and economic power at the expense of society at large. Similarly, Schneider praises Putnam and other social capital scholars for emphasizing the positive role that business associations may have in building democratic institutions. At the same time, he finds social capital theories inadequate when it comes to explaining short-term variations in business associations, and he criticizes their overall negative assessment of the state role. Likewise, Schneider acknowledges the contribution of Schmitter's societal corporatism model to understanding the state role in shaping business associations; but he contends that societal corporatism is based too much on the experience of Northern Europe and is too static in nature, which makes it ill-suited to explaining the political realities of Latin America.
In general terms, Schneider's thesis belongs to the school of thought that focuses on state capacity as the crucial independent variable shaping socioeconomic transformations. Yet his analysis incorporates elements of Olson's and Schmitter's pioneering works, such as incentives leading to the organization and interest articulation of business associations and government strategies in creating peak associations. In assessing the strength of his thesis, Schneider uses a traditional approach, walking the reader through the historical developments in each country by painstakingly analyzing state strategies in shaping the nature of business associations. In so doing, Schneider makes ample use of personal interviews, historical records, existing literature, and available statistics.
In the second part of the book, each country is analyzed individually, using the same approach. In the third and last part, the author assesses his theory in comparative perspective. This is one of the most important sections. Schneider finds, as he postulated earlier in the book, that the strongest encompassing business associations came to life during times of intense economic crisis. Equally important, such associations were created through government sponsorship, which emphasized selective incentives and policy involvement over a long period of time. Conversely, those associations that spontaneously emerged as a means to protect business from state encroachment were usually weaker, narrower in scope, and often more transitory than those encompassing associations that enjoyed government sponsorship.
Among the cases surveyed, Mexico most of all, and Colombia and Chile to a lesser degree, are examples in which strong business organizations consolidated...
Bandelj investigates the transition in Central and Eastern Europe from socialism to capitalism in her book From Communists to Foreign Capitalists. She focuses on foreign direct investment (FDI) as a means of evaluating the individual countries' transition toward capitalism in the first ten years after the fall of communism in 1989. The main purpose of the book is to demonstrate how economic markets are constructed using a sociological perspective that relies on three key mechanisms: social structures, power, and culture. Bandelj departs from the traditional economic view of FDI where the host country plays a passive role. She addresses the institutionalization and legitimization of FDI, the predictors of FDI flows, and the social embeddedness of economic actors that facilitate FDI. Throughout the book, evidence is compiled to support Bandelj's notion of a practical economic actor rather than a rational one.
Bandelj first analyzes the institutionalization and legitimization of FDI. She finds much variance in the level of active legitimizing processes undertaken by the governments. Czech Republic and Poland were rather quick at setting up institutions to legitimize and promote investment from abroad. On the other hand, Croatia, Slovakia, and Slovenia were more reluctant to immediately open up their national assets to foreign ownership. Bandelj explains the differences between the speed to setting up institutions that legitimize and therefore encourage FDI by the countries' histories, preferences of government insiders, and external pressures including agreements necessary for the move toward EU membership. Supporting her thesis of the social construction of markets, she finds these social indicators of FDI legitimization significant, while all economic indicators turned out insignificant. On the basis of these empirical analyses, she sustains that institutionalization and legitimization of FDI are strongly related to social structures, power, and culture and rejects the classic FDI hypothesis of the attractiveness of foreign capital economic factors.
Bandelj next analyzes the cross-country flows of FDI by taking a relational approach and hence focusing on the investor–host dyad. The analysis shows a strong relationship between the investor's historical– cultural ties with the host country and the investor's FDI flows as well as a strong relationship between network ties (both migration and export) and FDI flows. Again, Bandelj does not find significant relationships between economic predictors and FDI flows, but does uncover marginal effects of political stability increasing the flows from an investor to a country. This analysis leads her to conclude "that a set of social relations between investor and host countries may be more influential for FDI flows than country characteristics such as economic prosperity, political stability, or attractive FDI policy" (p. 130).
Bandelj complements her statistical analyses of FDI with a case study. AmeriCo, an American MNC, had network ties with Slovan, a Slovenian firm, prior to the collapse of communism. After communism fell, AmeriCo, the European market share leader, approached Slovan, a strong European market shareholder, about a possible acquisition. With Slovan looking at great economic benefits from the deal, AmeriCo did not take into account other factors affecting Slovan's decision on whether to be acquired. Slovan had multiple concerns with being acquired by AmeriCo ranging from the fear of job loss due to the American capitalist culture of profits come first to the fear of AmeriCo putting Slovan under the control of another AmeriCo subsidiary located in Italy. In the end, the acquisition did not happen due mainly to middle management and community opposition. After the failed acquisition, a German multinational that had been a major customer of Slovan for ten years purchased part of Slovan. The justification for selling to the Germans and not the Americans was that the Germans and the Slovenians were culturally more similar and that their business goals were better aligned.
Bandelj focuses strictly on the decade following the fall of communism in Central and Eastern Europe. The narrow time frame creates opportunities to investigate whether her findings of social market construction are robust across different geographic locations and in the time following the first decade post-communism in Central and Eastern Europe. The investigation of the social construction of markets could also be applied to nascent markets in capitalist societies. This would offer insights on whether the social construction...
Property in transition (Book I, chapter 1) …The typical business unit of the 19th century was owned by individuals or small groups; was managed by them or their appointees; and was, in the main, limited in size by the personal wealth of the individuals in control. These units have been supplanted in ever greater measure by great aggregations in which tens and even hundreds of thousands of workers and property worth hundreds of millions of dollars, belonging to tens or even hundreds of thousands of individuals, are combined through the corporate mechanism into a single producing organization under unified control and management.… Such an organization of economic activity rests upon two developments, each of which has made possible an extension of the area under unified control. The factory system, the basis of the industrial revolution, brought an increasingly large number of workers directly under a single management. Then, the modern corporation, equally revolutionary in its effect, placed the wealth of innumerable individuals under the same central control. By each of these changes the power of those in control was immensely enlarged and the status of those involved, worker or property owner, was radically changed. The independent worker who entered the factory became a wage laborer surrendering the direction of his labor to his industrial master. The property owner who invests in a modern corporation so far surrenders his wealth to those in control of the corporation that he has exchanged the position of independent owner for one in which he may become merely recipient of the wages of capital.
This study, now in a revised and updated third edition, covers the economic history of Latin America from independence in the 1820s to the present. it stresses the differences between Latin American countries while recognizing the external influences to which the whole region has been subject. Victor Bulmer-Thomas notes the failure of the region to close the gap in living standards between it and the United States and explores the reasons. He also examines the new paradigm taking shape in Latin America since the debt crisis of the 1980s and asks whether this new economic model will be able to bring the growth and improvement in equity that the region desperately needs. This third edition contains a wealth of new material that draws on the new research in the area in the past ten years.
LATIN AMERICA: THE SECOND STAGE OF REFORM Mois~s Nafm Mois~s Naim is senior associate at the Carnegie Endowment for International Peace. The author of Paper Tigers and Minotaurs: The Politics of Venezuela's Economic Reforms (1993), he has served as Venezuela's minister of industry and as an executive director at the Worm Bank. At the end of this century, in Latin America -- as almost everywhere in the world -- few institutions are held in more disrepute than the state. The state is widely perceived as too incompetent, too corrupt, or too crippled by political restrictions to be a reliable or effective instrument for achieving collective objectives. Hence the turn to the market. Discovering the market and abandoning overreliance on the state has done wonders for Latin America. In the 1980s, average inflation for the region was more than 150 percent per year; as recently as 1990, prices were rising by 1,200 percent annually. By 1993, inflation had plummeted to 19 percent, and economies that had shrunk every year for more than a decade had reestablished patterns of growth. ~ While average growth in the region is not high, some countries, such as Chile and Argentina, achieved growth rates that in some years put them on a par with the economic powerhouses of East Asia. A region where, for years, any excess funds instantly became flight capital is now a powerful magnet for international investment. But the discovery of the market will soon force Latin American countries to rediscover the state. Sustaining and deepening the positive changes brought about by the turn to the market will require states to increase their technical and managerial capacities far beyond present levels. In most countries of the region, even those that have advanced farthest in the adoption of market reforms, the state continues to perform functions better suited for the private sector while exhibiting an appalling incompetence in discharging core public functions. The process of dismantling the state and limiting its scope of intervention is still far Journal of Democracy Vol. 5, No. 4 October 1994 Mois~s Naim 33 from finished. At the same time, however, the more difficult task of creating or rehabilitating indispensable public-sector institutions lags far behind the requirements of both the new economic strategy and the political imperatives imposed by Latin America's feeble democracies. 2 While the region's political instability may be attributed to a variety of causes, it has been exacerbated in recent years by the inability of the state to deliver basic public services. Together with the social effects of high inflation and unemployment, the acute deterioration of state capacity has become a powerful destabilizing force. The biggest threats to economic stability -- a relapse into fiscal disarray and insufficient international competitiveness -- also flow from the failure to improve the performance of existing public institutions and policies. Sluggishness in creating new public agencies that are critical for the functioning of an open, market-based economy is undermining economic performance. Moreover, unless the administrative capacity of Latin American governments is increased, social conditions are bound to deteriorate, regardless of how much money is poured into social programs. Bringing the state back in ways that support and reinforce recent progress -- without restoring the state's previously displayed penchant for inflicting economic, social, and moral havoc -- will be the central challenge facing governments throughout the region. The spectacular turnaround that Latin America has witnessed so far did not hinge on the performance of public agencies. Rather, executive orders altering the macroeconomic environment did most of the work. That stage is over. Most countries are now entering a new stage in which they must respond to different priorities under political, institutional, and international circumstances that differ markedly from those characterizing the period when market reforms were launched. Stages of Economic Liberalization The region's recent progress was achieved by shrinking the state and rejecting economic policies that depended on the discretionary decisions of poorly trained bureaucrats accountable only to the political bosses who controlled their badly paid (but highly profitable) jobs. Countries dismantled some of the most pernicious public institutions. Agencies in charge of policing compliance with thousands of officially set prices, of administering foreign-exchange controls...
In Latin America, privatization started earlier and spread farther and more rapidly than in almost any other part of the world. More, and larger, firms were sold, and more proceeds were raised. Despite positive microeconomic results, privatization is highly and increasingly unpopular in the region. The core social criticism is that privatization contributes to growing poverty and inequality levels in Latin America—and circumstantial evidence supports the claim. But recent and rigorous studies dilute or counter the negative views, concluding that privatization has contributed only slightly to rising unemployment and inequality, and either reduces poverty or has no effect on it. Still, while privatization may be winning the economic battle it is losing the political war: The benefits are spread widely, small for each affected consumer or taxpayer, and occur (or accrue) in the medium-term. In contrast, the costs are large for those concerned, who tend to be visible, vocal, urban and organized, a potent political combination.
In this article, we examine the state of the art in comparative and international corporate governance by identifying the key research questions, main concepts, and paradigms of explanations of cross-country diversity in corporate governance. First, we discuss the multiple definitions of corporate governance across disciplines and explore how this multi-dimensional nature of corporate governance posses challenges when making cross-national comparisons. Second, we review existing comparative research on corporate governance and highlight some of the main characteristics of comparative analysis. Third, we analyze how comparative corporate governance has been understood from four different scholarly perspectives: economics and management, culture and sociology, legal, and political paradigms. We conclude from this third section that future research should make an effort to better integrate cross-disciplinary paradigms. Fourth, we investigate what insights these four perspectives bring to better understand change and stability in two particular governance dimensions: corporate ownership and the role of labor in comparative corporate governance. Finally, we conclude the article with some forward looking suggestions regarding (1) how different perspectives of corporate governance can be more effectively integrated by adopting case-based, historical and actor-centered forms of institutional explanations and by (2) discussing the current U.S. corporate governance system, frequently seen as the "best practice" model.
One of the greatest points of controversy in the recent literature in political economy is the extent to which shareholder value oriented institutional investors are drivers of change in national systems of corporate governance. This article argues that the key question is how management cultures shape managerial responses to pressures for change from capital markets. Empirical evidence for this argument is provided through an examination of changes since the mid-1990s at the Big Three German integrated chemical/pharmaceutical companies: Hoechst, Bayer and BASF. Despite facing similar demands from shareholder-value oriented investors, management at the three companies have pursued quite different strategies. The end result, however, may be the same from a production regime perspective, that is, the long-run withdrawal of Big Pharma from Germany as a location for R&D due to a more favorable institutional framework in the US.
The focus of comparative corporate governance scholarship is shifting from takeovers to controlling shareholders in recognition of the fact that public corporations everywhere but in the U.S. and U.K. are characterized by a shareholder with effective voting control. Debate is now turning to the merits of controlling shareholder systems, both on their own terms and in comparison to the U.S. and U.K. widely held shareholding pattern. To date, the debate has treated the controlling versus widely held distinction as central, disagreeing over whether a particular country owed its characteristic shareholder distribution to the quality of minority shareholder legal protection or to politics. This simple dichotomy is far too coarse to provide an understanding of the diversity of ownership structures and their policy implications. This article complicates the analysis of controlling shareholders and corporate governance by providing a more nuanced taxonomy of controlling shareholder systems. In particular, it distinguishes between efficient and inefficient controlling shareholders, and between pecuniary and non-pecuniary private benefits of control. The analysis establishes that the appropriate dichotomy is between countries with functionally good law, which support companies with both widely held and controlling shareholder distributions, and countries with functionally bad law, which support only controlling shareholder distributions. In this account, the United States and Sweden are the same side, rather than on opposite sides of the dividing line. The articles examines the different understanding of the role of controlling shareholders in corporate governance and the policy implications that flow from a taxonomy that focuses on support of diverse shareholder distributions.
This article uses the sequencing of privatization to infer the objective pursued by the Polish government in the privatization of its large manufacturing firms in the second half of the 1990s. We construct a model of mixed oligopoly and use it to evaluate the privatization process; our analysis is based on the assumption that firms which furthered the government's objective function the most would be chosen to be privatized first. Based on the features of the firms that were chosen for early privatization, our empirical analysis suggests that welfare maximization was more important than the desire to maximize the revenues from privatization and the government's budget or to minimize employment losses.
Why do some privatisations apparently fail to produce expected positive results? Economic theory tells us that privatisation should improve efficiency, but this book, originally published in 1998, suggests that political bargaining in the process of privatisation works against the results we expect to achieve. To gain a better understanding of what privatisation is really about, power at a firm level needs to be understood. Privatisation is a gradually unfolding, evolutionary process, often with defective corporate governance. Politicking can take priority over performance, with the result that efficiency is ignored and profitability is affected. This is a comprehensive book on privatisation which focuses on micro-level behavioural issues and it uses exceptionally rich case evidence to illustrate that privatisation is more about politics than performance.
The ownership of German corporations is quite different today from that of Anglo-American firms. How did this come about?
To what extent is it attributable to regulation? A specially constructed data set on financing and ownership of German corporations
from the end of the 19th century to the middle of the 20th century reveals that, as in the UK, there was a high degree of
activity on German stock markets with firms issuing equity in preference to borrowing from banks, and insider and family ownership
declining rapidly. However, unlike in the UK, other companies and banks emerged as the main holders of equity, with banks
holding shares primarily as custodians of other investors rather than on their own account. The changing pattern of ownership
concentration was therefore very different from that of the UK with regulation reinforcing the control that banks exercised
on behalf of other investors.
Latin America provides a unique scenario to expand current research on corporate governance. First, agency problems in the region may stem from the misalignment of goals and objectives between the majority and minority shareholders rather than from the diverse interests of management and owners. Second, corporate governance mechanisms available to mitigate agency problems may be inefficient or non-existent. Third, the lack of institutional protection for minority shareholders’ rights may enhance the potential for agency problems, especially for the expropriation of minority shareholders’ rights. Empirical analysis of data from 97 companies from Chile, Brazil, and Mexico from 2000 through 2002 indicates that a higher degree of family ownership increases the potential for expropriation of minority shareholders’ rights. Furthermore, companies affiliated with grupos appear to be less likely to expropriate their shareholders’ rights, possibly signaling changes in market environments in Latin America.
During the 1997 Korean financial crisis, firms with higher ownership concentration by unaffiliated foreign investors experienced a smaller reduction in their share value. Firms that had higher disclosure quality and alternative sources of external financing also suffered less. In contrast, chaebol firms with concentrated ownership by controlling family shareholders experienced a larger drop in the value of their equity. Firms in which the controlling shareholders’ voting rights exceeded cash flow rights and those who borrowed more from the main banks also had lower returns. Our results suggest that change in firm value during a crisis is a function of firm-level differences in corporate governance measures.
We study differences in the use of two corporate governance provisions – cumulative voting and proxy by mail voting – in a sample of about 220 firms located in four Eastern European countries. After controlling for other firm characteristics, we find that firms that have a large, minority blockholder are more likely to allow cumulative voting. We do not find any significant relationship between the use of these corporate governance provisions and foreign ownership. We conclude that the use of cumulative voting is associated with the presence of large, minority shareholders.
This study examines how ownership structure and conflicts of interest among shareholders under a poor corporate governance system affected firm performance before the crisis. Using 5,829 Korean firms subject to outside auditing during 1993–1997, the paper finds that firms with low ownership concentration show low firm profitability, controlling for firm and industry characteristics. Controlling shareholders expropriated firm resources even when their ownership concentration was small. Firms with a high disparity between control rights and ownership rights showed low profitability. When a business group transferred resources from a subsidiary to another, they were often wasted, suggesting that “tunneling” occurred. In addition, the negative effects of control-ownership disparity and internal capital market inefficiency were stronger in publicly traded firms than in privately held ones.
What determines the composition of companies' boards in the context of high ownership concentration? Are independent directors important as an internal governance mechanism in companies with high ownership concentration? Do markets favor companies whose controlling shareholders use voting rights to elect professional directors?Using a four-year, 160-company panel data, and controlling for endogeneity, this paper addresses these three related questions, finding that an increase in the proportion of outside directors affects company value. The paper also finds that companies that present more exacerbated agency conflicts tend to incorporate professional directors to the boards, in an effort to improve corporate governance and ameliorate the agency problem.
The paper investigates the hypothesis that large shareholders use shares with differential voting rights for the purpose of expropriating minority shareholders. Consistent with several theoretical arguments but inconsistent with the expropriation hypothesis, we find that large shareholders own much more equity than required for control. We also show how the law can construct a regulation which reduces the opportunity for expropriation and at the same time allows for the possible benefits of differential voting rights.
This article is the first study of long-run evolution of investor protection and corporate ownership in the United Kingdom over the twentieth century. Formal investor protection emerged only in the second half of the century. We assess the influence of investor protection on ownership by comparing cross-sections of firms at different times in the century and the evolution of firms incorporating at different stages of the century. Investor protection had little impact on dispersion of ownership: even in the absence of investor protection, rates of dispersion of ownership were high, associated primarily with mergers. Preliminary evidence suggests that ownership dispersion in the United Kingdom relied more on informal relations of trust than on formal investor protection. The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org., Oxford University Press.
This study evaluates the capital-structure determinants of Latin American firms using a comprehensive sample covering seven countries. Firms in the region have debt levels similar to those of U.S. firms, which is puzzling, given that Latin American firms experience relatively lower tax benefits and higher bankruptcy costs. This study argues that ownership-concentrated firms avoid issuing equity because they do not want to share control rights. Latin American firms have high ownership concentration, which creates an ideal setting to study how ownership concentration explains firms' capital structure. Consistent with the control argument, this study finds a positive relation between leverage and ownership concentration, when losing control becomes an issue. Also, the study shows a positive relation between leverage and growth. In addition, the study reports that other determinants that do not proxy for control rights are consistent with previous findings. Firms that are larger, have more tangible assets, and are less profitable are also more leveraged.