National Corporate Governance Systems Research Articles

A Comparative Analysis of Hostile Takeover Regimes in the US, UK and Japan (with Implications for Emerging Markets)

In each of the three largest economies with dispersed ownership of public companies - the United States, the United Kingdom, and Japan - hostile takeovers emerged under a common set of circumstances. Yet the national regulatory responses to these new market developments diverged substantially. In the United States, the Delaware judiciary became the principal source and enforcer of rules on hostile takeovers. These rules give substantial discretion to target company boards in responding to unsolicited bids. In the UK, by contrast, a private body consisting of market professionals was formed to adopt and enforce the rules on hostile bids and defenses. In contrast to those of the US, the UK rules give the shareholders primary decision making authority in responding to hostile takeover attempts. The hostile takeover regime in Japan, which developed recently and is still evolving, combines substantive rules with elements drawn from both the US (Delaware) and the UK, while adding distinctive elements, including an independent enforcement role for Japan’s stock exchange. This Article provides an analytical framework for business law development to explain the diversity in hostile takeover regimes in these three countries. The framework focuses on the universal supply and demand dynamics that drive the evolution of business law in response to new market developments. It emphasizes the common role of subordinate lawmakers in filling the vacuum left by legislative inaction, and it highlights the prevalence of “preemptive lawmaking” to avoid legislation that may be contrary to the interests of important corporate governance players. Extrapolating from the analysis of developed economies, the framework also illuminates the current state and future trajectory of hostile takeover regulation in the important emerging markets of China, India, and Brazil, where corporate ownership structures may be changing. An important pattern revealed by the analysis is the ostensible adoption - and adaptation - of “best practices” for hostile takeover regulation derived from Delaware and the UK in ways that protect important interests within each emerging market’s national corporate governance system.

The making of active boards in Swedish public companies

Boards of directors are a vital part of corporate governance systems. In the on-going discussion about the development of national corporate governance systems, however, little interest has been given to the issue of how and why board behavior changes over time. In this article, we use an institutional approach and study the development of board behavior in Sweden between 1994 and 2004 and if it is affected by board composition and board network characteristics. In order to do so, we introduce the constructs of board activities, i.e. what the boards do, and board involvement, i.e. when in the decision process they get involved. Findings show that range of board activities and board involvement have increased drastically during this period, which indicates a change in the logic of appropriateness of Swedish board behavior. There are robust indications that new types of actors affect activities and involvement positively, as do board interlocks, whereas network centrality affects activities and involvement negatively.

The Place of Codes of Corporate Governance in The EU Company Law

In the paper the authors analyze the role of corporate governance codes in reaching the best practice in corporate governance. The corporate governance is a set of complementary mechanisms aimed at protecting investors' rights. A special attention is given to the content of a chosen set of EU Codes of Corporate Governance in order to define the main differences but also the significant similarities between them. The chosen set of the EU Codes includes French, Italian, Austrian, German, UK, Swiss, Slovenian, Norwegian and Croatian Code. The authors stressed their opinion that the main differences among the coverage of Codes are the results of the characteristics of the national corporate governance system and law. In the most EU countries complying with the Code's provisions and applying the Code's principles is not obligatory and they are not legally binding. The authors concluded that similarities are bigger than differences and they give a great contribution in improving corporate governance.

National corporate governance institutions and post‐acquisition target reorganization

AbstractWe examine the characteristics of national systems of corporate governance to theorize about the nature of the shareholders' and employees' interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in both the host and the target country of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross‐national dataset of corporate acquisitions and post‐acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer's ability to restructure the target's assets and leverage the target's resources, while the protection of employee rights in the target country restricts the acquirer's ability to restructure the target's assets and redeploy resources to and from the target. Copyright © 2009 John Wiley & Sons, Ltd.

Trust in Cross-national Labour Relations: A Case Study of an Anglo-Dutch European Works Council

Using in-depth case study research conducted at a UK-based European Works Council, this article explores the dynamics of cross-national trust relations between workers' representatives. The results of the study point to a deficiency of trust between the two largest national delegations of workers on the forum. I integrate the sociological theory of dramaturgy and the varieties of capitalism framework in order to explain this deficiency. It is argued that the weak relations of trust among the delegates stem from the competitive pressures of employment in a multinational firm, the corresponding parochial interest representation and the unequal power relations within the forum that derive from the contextual features of each delegation's national system of corporate governance. The prospects for building trust via reflexivity and learning are also considered.

How National Corporate Governance Systems Affect Global Integration

Multinational companies (MNCs) vary in both their use of global strategy and in the systems of corporate governance in which they operate. In this paper, we develop a theoretical framework and set of propositions to show that differences in national corporate governance systems will influence the behavior of corporate actors, which in turn explains the ability of MNCs to achieve global integration. In particular, we conceptualize our comparative model for MNCs by drawing on an actor-centered institutional theory perspective, focusing on five key governance actors: employees, shareholders, boards of directors, top management teams, and governments, to predict MNC's ability to achieve global integration in terms of global strategy and organization. We show that despite increasing convergence pressures, nationally embedded institutional characteristics continue to shape the globalization strategies of multinational companies.

National Corporate Governance Institutions and Post-Acquisition Target Reorganization

We examine the characteristics of national systems of corporate governance to theorize about the nature of the shareholders' and employees' interests when it comes to reorganization, under the assumption that the firm is coalitional in nature. We argue that corporate governance institutions prevalent in the countries of origin of the merging firms enable or constrain the ability of the acquirer to reorganize the target. Using a cross-national dataset of corporate acquisitions and post-acquisition reorganization, we found support for our predictions that stronger legal protection of shareholder rights in the acquirer country compared to the target country increases the acquirer's ability to restructure the target's assets and leverage the target's resources, while the protection of employee rights in the target country restricts the acquirer's ability to restructure the target's assets and transfer resources to and from the target.

Why Adopt Codes of Good Governance? A Comparison of Institutional and Efficiency Perspectives

ABSTRACTManuscript Type:EmpiricalResearch Question/Issue:Given the global diffusion and the relevance of codes of good governance, the aim of this article is to investigate if the main reason behind their proliferation in civil law countries is: (i) the determination to improve the efficiency of the national governance system; or (ii) the will to “legitimize” domestic companies in the global financial market without radically improving the governance practices.Research Findings/Insights:We collected corporate governance codes developed worldwide at the end of 2005, and classified them according to the country's legal system (common or civil law). Then, we made a comparative analysis of the scope, coverage, and strictness of recommendations of the codes. We tested differences between common law and civil law countries using t‐tests and probit models. Our findings suggest that the issuance of codes in civil law countries be prompted more by legitimation reasons than by the determination to improve the governance practices of national companies.Theoretical/Academic Implications:The study contributes to enriching our knowledge on the process of reinvention characterizing the diffusion of new practices. Our results are consistent with a symbolic perspective on corporate governance, and support the view that diffusing practices are usually modified or “reinvented” by adopters.Practitioner/Policy Implications:Our results support the idea that the characteristics of the national corporate governance system and law explain the main differences among the coverage of codes. This conclusion indicates the existence of a strong interplay between hard and soft law.

Are corporate governance systems typologies relevant? Evidence from European transfers of ownership rights

Corporate governance systems vary considerably across Europe, reflecting the differences in the financial and legal systems, and in corporate ownership structures. The purpose of this paper is to identify the relevant governance system typologies. To test the robustness of the typologies, we study transfers of ownership rights that may be an important determinant of corporate governance in the largest European economies. Results overall invalidate the expectations induced from the theoretical analysis of national corporate governance systems. They suggest that the classical typologies are insufficient to distinguish between governance systems as they miss to capture institutional complementarities and political differences. Our unexpected results could also suggest a convergence of the systems, not towards the Anglo-American model, but towards a new model.

Management Accounting on the Regulatory Agenda? The Transnational and Local Arenas of Financial Reporting Change in Britain

This qualitative study investigates societal and historical settings, which enabled proposals for mandatory narrative reporting on a business' underlying non-financial and future-oriented success factors in an Operating and Financial Review (OFR) to become a key issue on British Company Law reform-agenda in 1998 to 2006. The analysis argues that accounting regulation reform is shaped by a wide range of non-accounting disciplines that intersect with accounting at a certain moment in history. The British accounting reform debates are seen in relation to other national and arenas of discourse to explain how ideas of future-oriented narrative reporting that have been discussed among British accounting professionals for more than 30 years gained momentum in public regulatory activity after further evolution through history. The analysis begins with a review of British proposals for inclusion of accounting narratives in financial reporting-regulation since mid-1970s, and argues that regulatory reform-initiatives in accounting are also shaped by a wide range of non-accounting disciplines that intersect with accounting at a certain moment in history. The study then outlines a locally detached constellation of overlapping problem-discourses in corporate social responsibility (CSR), strategic management, and management accounting in light of new global competition during 1980s, which challenged and expanded commonly agreed notions of appropriate accounting practice to integrated strategic financial and non-financial performance measurement. The translation of this transnational frame of reference into financial reporting regulation reform-proposals is then traced in British accounting reform agents' problem-discourses on financial reporting in mid-1990s. Financial reporting standard setters, corporate governance reformers, and public policy think tanks drew on expanding conceptions of accounting beyond the numbers to address problems of international economic competitiveness and a lack of trust in national corporate governance and financial reporting systems. Their particular critique on traditional financial reporting seemed to parallel relevance lost thesis in management accounting. The study concludes that presentation of non-financial and future-oriented reporting as a solution to bigger problems of international economic competitiveness and a lack of trust in national corporate governance systems stabilised a national constellation of debates in financial reporting, public policy-making, and corporate governance as much that a regulatory space for introduction of mandatory OFR could eventually emerge. The genealogy of OFR as an issue for public regulation provides basis for further examination of dynamics of actors and ideas within a regulatory space over term of British Company Law Review from 1998 to 2006.

The Effects of R&D Investment and Firm Size on Growth Opportunities of Newly Listed Firms: European Evidence

Abstract Using data for 831 IPO firms listed from 1986 to 1998 in the UK, France, Germany and Italy, this paper investigates the inter-relationships between R&D and growth opportunities in different national systems of corporate governance. Results indicate that growth opportunities are positively related to R&D investments, and negatively related to financial leverage and firm size. Growth opportunities are also negatively related to the interaction between financial leverage and R&D investments, particularly countries with weak minority shareholder protection, such as Germany, Italy and France. Further, a positive effect of the interaction between leverage and R&D activities is greater in larger UK firms, but negative in smaller UK firms. The interaction of leverage and R&D has a negative effect on growth in small firms and this is stronger in continental Europe than in the UK. Keywords: Growth Opportunities, Newly Listed Firms, Leverage, Firm Size, External Corporate Governance mechanisms. JEL classifications: G31, G32, G34

Principles and Agents: CalPERS and corporate governance in Japan

A growing literature discusses the convergence of national systems of corporate governance. Fostering convergence are activist institutional investors, especially from the United States. The following is a case study of one institutional investor – the giant pension fund, CalPERS – and its efforts to change governance in Japan over the past 15 years. CalPERS’ involvement in Japan went through three stages: solo activism; cultivation of local partners; and, most recently, a shift from marketwide activism to company‐level relational investing. Although CalPERS has had some success in changing Japanese corporate governance, economic and political factors have limited its influence and permitted the persistence of Japan’s distinctive governance system.

International Regimes: The Case of Western Corporate Governance

Accounting and financial scandals of unprecedented scale have recently occurred in the United States, Europe, and elsewhere. Much of the cause for these scandals has been attributed to the poor corporate governance standards practiced by the offending companies, leading researchers to re-examine how corporate governance affects economic development. One topic receiving significant research attention has been whether national corporate governance systems are likely to converge, what form that convergence may take, and what barriers currently inhibit convergence. This essay argues that the tools of regime theory hold significant potential for helping to structure empirical inquiry into the process of corporate governance convergence. It then draws upon the recent experience of Western corporate governance systems to illustrate how a consensus on norms, values, and principles in the issue area of corporate governance is emerging. The essay concludes by drawing out the implications of the developing corporate governance regime for emerging market economies and the general topic of global governance. It also poses questions for continued empirical research in the area of corporate governance and international relations.

Governance Reform And The Changes In Legislation On Corporate Control In China

Following China entered the World Trade Organisation in November 2001, attention has been paid worldwide to the current Chinese legal system, political policies, and the development of economic reform. Recent debates on corporate governance in China have become a global topic of interest. The corporate governance reform is now the centre of the enterprise reform. This paper evaluates the development of corporate governance reform in China and identifies its changes in legislation on corporate control. This paper provides evidence to show that China has been making significant progress in the development of corporate governance reform. It concludes that China has established a fundamental legal framework for corporate governance. The changes in regulations on corporate control indicate that the development of a more sophisticated corporate governance system is under way. However, corporate governance reform in China is still at an early stage of development. The existing problems are still significant. Laws and legal institutions have experienced difficulties keeping up with the changes that have been taking place in China. The rights of selecting management of state‐owned enterprise still remain in the hands of the state. The reform of the banking system lags behind the development of the market economy and state‐owned banks are still under government's control. The paper argues that in Chinese context as far as the rights of selecting management remain in state's hand, the independent board of directors will have less power to achieve the goals in corporate control. Thus the agency problems will not be solved, and it is very difficult to excise and protect minority shareholders' interest. In today's Chinese market the corporate governance cannot provide the protection of minority investors' interests. This paper also argues that it is very dangerous for individual investors to invest in the Chinese market and they have to bear higher risks. This paper suggests that increasing the Sophistication of the corporate governance system of both internal and external control is the key for the Chinese market. This is because the Chinese context is very complicated. There are so many regulations and laws applied in business practice. Different companies and enterprises apply different laws. This paper points out when a national corporate governance system is established it should serve the whole economic market. Thus the further reform of state‐owned enterprises and also the banking system should take place so that China can build up a real economic market structure according to international regulations. This paper also suggests that in the long‐term, building up a cultural background for applying corporate governance system is very important in Chinese society. Improving the culture in the social environment could help to improve the corporate governance in business practices.

On the Convergence of National Corporate Governance Systems

Some scholars have argued that the corporate governance systems of the major economies are likely to converge towards the economically best system at a rapid pace, while others maintain that such convergence will not occur because of a variety of forms of path dependence. In this article we first describe the evolution of the different systems. Then we search for evidence that convergence of corporate governance is correlated with globalisation, i.e. governance systems will converge to a certain degree and that the fear of an “inefficient convergence” is unfounded. We do so by describing the present efforts for a unification of the corporate governance systems. The number of standards-setting bodies and multilateral institutions that have been set up in recent times to foster good corporate governance worldwide is testimony to the heightened interest in this particular issue. In addition we present arguments for a further harmonisation and weaken the theories against it. We conclude that the systems will converge because the pressure of change is stronger than the tendencies of persistence. In addition we argue that systems composed of useful elements of different systems can be optimal.

On the Convergence of National Corporate Governance Systems: A note on Braendle and Noll

On the Convergence of National Corporate Governance Systems: A note on Braendle and Noll

Corporate governance: Toward converging models?

The most fundamental distinction among models of corporate governance is the one made between the shareholder and the stakeholder models. But in these times of globalization, the powerful growth of institutional investors has an increasing impact on how corporations function. One important question that arises is whether one particular national corporate governance system is better than another, and whether national governance systems will converge. If convergence does occur, does that mean that systemic differences will disappear, leaving only one model, or are we witnessing a dual convergence leading to a hybrid model, specific to each system according to the dependency path?

Is the Single European Market an Illusion? Obstacles to Reform of EU Takeover Regulation

Abstract Since 1989 the European Commission has attempted to harmonise rules governing EU takeovers as a crucial step towards the integration of Europe's capital markets. The article takes its starting point in the vote in the European Parliament in July 2001, which turned down a proposal for a Takeover Directive. Members of the European Parliament overwhelmingly voted according to national rather than party lines, which is unusual. The article develops an explanation for opposition to the directive, which emphasises differences between national systems of corporate governance. The outcome is asymmetric vulnerability, which means that the likelihood of a company becoming the target of an unwanted takeover bid differs depending on the nature of national incorporation. The article shows how national differences constituted obstacles to real reform within a context of arguments about how to create a level playing field.

Corporate governance, industrial relations and trends in company‐level restructuring in Europe: convergence towards the Anglo‐American model?

ABSTRACTThis article addresses the issue of how patterns of corporate restructuring are shaped by national systems of corporate governance and industrial relations. Using case studies of three multinationals, it sheds light on the question of whether the way in which restructuring takes place is converging towards the norms characteristic of the Anglo‐American model. It is argued that considerable changes are evident among national systems, but that these changes are not all occurring at the same pace, nor are all countries moving in the same direction. Consequently, the way that multinational companies restructure their activities varies markedly according to both the business system in their country of origin and the various host systems in which they are located.

On the Convergence of National Corporate Governance Systems

Some scholars have argued that the corporate governance systems of the major economies are likely to converge towards the economically best system at a rapid pace, while others maintain that such will not occur because of a variety of forms of path dependence. In this article we first describe the evolution of the different systems. Then we search for evidence that of corporate governance is correlated with globalisation, i.e. governance systems will converge to a certain degree and that the fear of an inefficient convergence is unfounded. We do so by describing the present efforts for a unification of the corporate governance systems. The number of standards-setting bodies and multilateral institutions that have been set up in recent times to foster good corporate governance worldwide is testimony to the heightened interest in this particular issue. In addition we present arguments for a further harmonisation and weaken the theories against it. We conclude that the systems will converge because the pressure of change is stronger than the tendencies of persistence. In addition we argue that systems composed of useful elements of different systems can be optimal.