Chapter: Takeovers and Takeover Policy
- [Show abstract] [Hide abstract] ABSTRACT: Using the persistence of corporate profits as a measure of the intensity of product market competition in 19 countries for the period 1995-2005, we find that civil law systems are more competitive, in this sense, than common law ones. Greater shareholder protection increases competition between firms in common law countries, but reduces it in civil law ones. We conclude that shareholder rights act as complements to product market competition in the common law world but not in the civil law world, and explain this result by reference to the common-law origins of shareholder-orientated corporate governance.
- [Show abstract] [Hide abstract] ABSTRACT: Legal origins theory suggests that law reform should have a causal impact on fi nancial development. We use recently created datasets measuring legal change over time in a sample of 25 developing, developed and transition countries to test this claim. We fi nd that increases in shareholder protection contribute to stock market growth in the common law world and in developing countries, but not in the civil law world. We also fi nd evidence of reverse causation, with fi nancial development triggering legal changes in the developing world. We consider a number of reasons for the selective impact of law reform, focusing on the endogeneity of the legal system to its economic context, and on resulting complementarities between legal and fi nancial institutions.
- [Show abstract] [Hide abstract] ABSTRACT: As the shortcomings of the dominant “Washington Consensus” approach to economic development and well-being become ever more apparent, there has been increasing concern expressed at the pitfalls of globalization and the activities of multinational corporations (Sen 1999; Rodrik 2001; Stiglitz 2002; Bailey and De Ruyter 2007). In particular, concerns have been expressed over the growth of vulnerable employment (largely in the informal sector) that has occurred directly as a result of neoliberal policies espoused under the Washington Consensus; the “Washington Consensus” approach has ignored gender, labor, and environment issues and further entrenched existing inequalities (De Ruyter and Warnecke 2008).
- [Show abstract] [Hide abstract] ABSTRACT: Legal origins theory suggests that law reform should have a causal impact on financial development. We use recently created datasets measuring legal change over time in a sample of 25 developing, developed and transition countries to test this claim. We find that increases in shareholder protection contribute to stock market growth in the common law world and in developing countries, but not in the civil law world. We also find evidence of reverse causation, with financial development triggering legal changes in the developing world. We consider a number of reasons for the selective impact of law reform, focusing on the endogeneity of the legal system to its economic context, and on resulting complementarities between legal and financial institutions.
- [Show abstract] [Hide abstract] ABSTRACT: This contribution addresses the question of whether growth convergence can be sustained in the global economy without compromising welfare and without causing major crises. It employs a simplified stock-flow analytical framework to examine the proposition that the pace and pattern of global growth is conditioned by ‘under-consumption’ in some regions of the world and ‘over-borrowing’ in other regions. A baseline projection using the Cambridge-Alphametrics model (CAM) illustrates consequences of resumed global imbalances after the 2008–2009 crisis. An alternative scenario exemplifies the case in which China and India shift towards internal income redistribution and domestic demand-orientated policies and suggests that this will not be sufficient to correct global imbalances or induce improved growth rates in other developing regions. Finally a more ambitious development perspective is simulated. Such a scenario requires internationally-coordinated policy efforts, with a greater role for governments in the management of demand, income distribution and environmental sustainability, as well as measures to reduce instability of exchange rate and commodity markets.
- [Show abstract] [Hide abstract] ABSTRACT: This paper provides a review and commentary on the current financial and economic crisis. It considers important analytical and policy issues from a global and North-South perspective. The analytical questions cover issues such as the better than expected performance of the world economy, the role of global financial imbalances, and whether or not economic theory has been helpful. It is argued that close international cooperation and policy coordination are essential to recovery and an improved distribution of the fruits of growth. Cooperation and financial regulation are particularly necessary in order to prevent international contagion and cascading sovereign debt defaults.
- [Show abstract] [Hide abstract] ABSTRACT: This paper analyses a longitudinal dataset on legal protection of shareholders over a 36 year period, 1970–2005, for four advanced countries, the UK, France, Germany and the USA. It examines two aspects of the legal origin hypothesis—whether shareholder protection is higher in the common law countries (UK and USA) than in the civil law countries (France and Germany) and whether shareholder protection matters for stock market development in the short and long runs. It also examines the ‘causation’ issue and the ‘endogeneity’ problem—whether greater shareholder protection leads to stock market development or whether stock market development leads to changes in law. The paper casts serious doubt on the validity of the basic theses of the Anglo Saxon legal and developmental model.
- [Show abstract] [Hide abstract] ABSTRACT: This paper comprises the long introduction to the symposium of five papers on financial globalisation published in the Cambridge Journal of Economics, volume 34, no 2. The paper discusses the impact of financial globalisation in a variety of spheres and shows how the five papers link together to provide a coherent view of the current economic and financial crisis. In this paper we also examine the globalisation of finance more broadly both in historical terms as well as in relation to the current widespread failure in the financial markets. We take up the policy question of how the interests of the poor in particular, and developing countries in general, could be safeguarded from the vagaries of financial globalisation, questioning how much choice communities and countries have and what can the international community do to extend these choices?
- [Show abstract] [Hide abstract] ABSTRACT: A major issue today is whether globalization of the world's labour, capital and product markets, together with rapid economic growth in India and China, will have an adverse effect on workers in the US and other advanced countries. Simulations of different scenarios using the Cambridge-Alphametrics Model of the World Economy indicate that, at a bloc-disaggregated level, there are severe supply-side constraints relating particularly to natural resources (energy and raw materials) that thwart the expansionary demand effects of fast growth in India and China. This analysis is based on long-term trends in the world economy prior to the current global financial crisis. However, for the sake of completeness, it also comments on the likely implications of this crisis for the USA and other advanced country workers.
- [Show abstract] [Hide abstract] ABSTRACT: A major purpose of this paper is to examine the effects of poor governance or ‘state fragility’ in African countries on their overall economic and agrarian performance. The results of our econometric analysis show that a higher level of public security is conducive to lower levels of conflict, whether of an ethnic, religious and regional nature. It also corresponds with greater agricultural value-added per capita. The analysis further indicates that trade openness and aid do not have a substantial impact on agricultural development. Our institutional and historical examination of the structural adjustment programmes in African countries suggest that African agriculture’s poor performance is not necessarily due to the negative influence of African governments, but could also, in large part, be attributed to the policies advocated by the international financial institutions and donor countries. The resolution of the problems associated with these policies lies in improving the ability of African farmers to benefit from new agrarian technologies that raise staple food productivity and thereby enhance food security and national stability. The paper also provides, inter alia, a nuanced analytical description, based upon available aggregate statistics, of the short and long-term performance of African economies and their agricultural sectors during the last 25 years.
- [Show abstract] [Hide abstract] ABSTRACT: When comparisons in terms of industrial policy lessons to be learned have taken place, it has tended to be solely vis-a-vis the ‘development state’ East Asian experience. This paper broadens the analysis and considers lessons which African countries can learn from other so-called ‘tiger’ economies including Ireland and the East and South Asian countries. We recognise that the latter are indeed clearly significant as many African countries at the time of independence had economic structures and levels of income quite similar to East Asian countries, yet have grown at vastly different rates since then. Exploring why this has been the case can thus offer important insights into possibilities for industrial policy. Yet this comes with some health warnings over East Asian experience. We suggest that another important contribution can come by looking at the Irish example, given its emphasis on corporatism rather than simply relying on state direction in the operation of industrial policy. The Irish model is also more democratic in some senses and has protected workers’ rights during the development process in contrast to the often highly dirigisite East Asian model. Overall we suggest that some immediate actions are needed, notably with regard to the financial system in small African economies. Without such changes, a poorly functioning financial system will continue to keep investment at low levels. In relation to the small size of the African economies, the paper recommends regional integration and sufficient overseas development assistance (ODA) for infrastructural development. It is also critical to note that the various small African economies each face their own industrial and economic development challenges, and that a ‘one size fits all’ approach is not appropriate; rather the key is to tailor policies and systems to the unique opportunities and development challenges in each African country.
- [Show abstract] [Hide abstract] ABSTRACT: In the post-World War II period, India was probably the first non-communist developing country to have instituted a fully-fledged industrial policy based on some form of central planning. The purpose of the policy was to coordinate investment decisions both in the public and the private sectors and to seize the "commanding heights" of the economy by bringing certain strategic industries and firms under public guidance. This chapter argues that the ensuing industrial policies not only had a major role in fostering India's industrial revolution but still play an important role in the current period of rapid growth.
- [Show abstract] [Hide abstract] ABSTRACT: It is argued here that - contrary to current conventional wisdom - an active market for corporate control is not an essential ingredient of either company law reform or financial and economic development. The absence of such a market in coordinated market systems during their modern economic development was not an evolutionary deficit, but an effective and positive institutional arrangement. The economic and social costs associated with restructuring driven by hostile takeover bids, which are increasingly seen as prohibitive in the liberal market economies, would most likely harm the prospects for growth in developing and transition systems.
- [Show abstract] [Hide abstract] ABSTRACT: Using a panel data set covering a range of developed and developing countries, we show that common-law systems were more protective of shareholder interests than civil-law ones in the period 1995–2005. However, civilian systems were catching up, suggesting that legal origin was not much of an obstacle to formal convergence in shareholder protection law. We find no evidence of a positive impact of these legal changes on stock market development. Possible explanations are that laws have been overly protective of shareholders and that transplanted laws have not worked well in contexts for which they were not suited.
- [Show abstract] [Hide abstract] ABSTRACT: Professor W. B. Reddaway (known to friends and colleagues as Brian Reddaway) was an exceptional economist who had a huge influence on how economics in Cambridge has been taught and researched. He held leadership positions in the Faculty of Economics and Politics at Cambridge for 25 years, between 1955 and 1980. The main purpose of this paper is to explain Reddaway's method and his distinct approach to economics. It also briefly reviews his life and times. The words in the title summarise his philosophy of research, as will become clear in the paragraphs which follow.
- [Show abstract] [Hide abstract] ABSTRACT: This paper explores the question of whether the institution of the stock market is likely to be helpful to low and middle income countries in promoting development of their real economy and ensuring fast industrial growth. The case for and against the stock market inevitably involves a discussion of the important related subjects of corporate finance, corporate governance and corporate law. Contrary to the literature the paper arrives at a negative overall assessment of the institution of the stock market in relation to economic development. It also contributes by its policy proposals concerning the markets for corporate control which again are in conflict with much of the conventional wisdom on the subject.
- [Show abstract] [Hide abstract] ABSTRACT: A major political and policy issue today is whether globalisation and rapid economic growth in India and China would have an adverse affect on labour markets in the U.S. and other advanced countries. Some leading economists have argued that even though the recent integration of India and China with the liberalised global economy has not so far had a serious negative impact on wages and employment in advanced countries, it is most likely to do so in the future in view of the growing technological and scientific capabilities in the two developing countries. This is also because it is suggested that this integration represents a sudden doubling of the world labour force without a concomitant increase in capital. The present paper argues against this plausible thesis, essentially on two grounds: (a) it does not take into account the demand side effects of fast growth in India and China; and (b) it abstracts from the dynamism of the U.S. real economy and its innovative large corporations. However, simulations of different scenarios on the CAM world econometric model indicate that at a disaggregated level there are severe supply side constraints on energy, raw materials and food which thwart the expansionary demand side effects of fast growth in India and China.
University of BirminghamBirmingham, England, United Kingdom
University of Cambridge
Cambridge, England, United Kingdom
- Faculty of Economics