The leading themes of the paper by Professor Adams [1999] on the governance of German firms concern cross holdings and limited transparency. In particular, it describes with clarity several misuses of cross holdings and opportunities to circumvent transparency laws. Moreover, it suggests that lack of transparency is created on purpose, and that secrecy about corporate ownership and voting power as well as the ownership structures are aimed at protecting the powerful position of a small group of managers. As correctly pointed out in the discussion by Professor Nyborg [1999], the suggestions made in Michael Adams' paper need to be supported by empirical evidence showing that the system is detrimental to companies, or at least that it has important drawbacks relative to a governance system with more transparency and less interlocking ownership. Existing empirical evidence, however, is incomplete. As discussed by Kjell Nyborg, several studies for Germany indicate that some disciplining may be going on in the market for corporate control (e.g., Franks and Mayer [1997], Kaplan [1994] and Gorton and Schmid [1996]). Furthermore, Kjell Nyborg also points out that there is always a possibility that a system of self-regulation among insiders materializes as suggested, for example, by Hommel [1998] for Germany, or by Berglof and Perotti [1994] for Japan. By contrast, the fact that lack of transparency and defects in the protection of small shareholders may cause sizeable agency costs is an important theme in recent empirical work. In particular the international comparative empirical evidence in La Porta, Lopez-de-Silanes, Shleifer and Vishny [1997a], and further supported in La Porta, Lopez-de-Silanes, Shleifer and Vishny [1997b], suggests that legal protection of outside investors differs enormously across countries. Defective laws or enforcement cause agency problems that primarily manifest themselves through non-value-maximizing investment choices. La Porta, Lopez-de-Silanes, Shleifer and Vishny [1997a], [1997b] conclude that the level of agency costs varies a great deal across countries, and the legal system would be a good proxy for these costs. When applied to a specific country like Germany, this latter evidence is obviously coarse in nature. Nevertheless it indicates that one is still far from understand-