Corporate Governance: Effects on Firm Performance and Economic Growth

Abstract

Abstract The relationship between corporate governance and economic performance bas become one of the most controversial issues faced by policymakers today. Each country has through time developed a wide variety of mechanisms to overcome the agency problems that arise from the separation of ownership and control. While some systems are characterized by wide dispersed ownership (outsider systems), others tend to be characterized by concentrated ownership or control (insider systems). In outsider systems of corporate governance (notably the USA and UK) the basic conflict of interest is between strong managers and widely dispersed weak shareholders. In insider systems (notably Continental Europe and Japan), on the other hand, the basic conflict is between controlling shareholders (or block holders) and weak minority shareholders. Therefore, one of the most striking differences between countries’ corporate governance systems is in the ownership and control of firms, and the identity of controlling shareholders.