Corporate Governance: Theoretical and Empirical Perspectives

248 Pages·2000·15.275 MB·English

by  Xavier Vives

Corporate Governance
Corporate governance is an active area of research and public debate.
The recent generalization of "shareholder value" ideas and institutional
investment, the establishment of codes of best practice for boards of
directors, and the controversy about whether market-oriented, bank-
oriented, or relations-based systems are better for economic perfor-
mance provide cogent examples. The outcome of the debate is important
for industrialized nations, developing countries, and transition eco-
nomies. The volume takes stock of the most recent research in the topic,
criticizes the standard agency view, and presents new ideas and analysis
about the role of competition, the political economy of corporate gov-
ernance, the effects of different systems on growth and performance, the
governance system by venture capital in Silicon Valley, and human
capital and control in the new corporation.
Xavier Vives is Director and Research Professor of Economics, Institut
d'Analisi Economica (CSIC), Barcelona, and Research Fellow of the
Centre for Economic Policy Research (CEPR). He has taught at Harvard
University, New York University, Universitat Autdnoma de Barcelona,
Universitat Pompeu Fabra, the University of California at Berkeley,
and the University of Pennsylvania, and he has been Director of the
Industrial Organization Program of CEPR (1991-1997). Professor
Vives's fields of interest are industrial organization, information and
uncertainty, and banking and financial economics. He has published in
the main international journals and edited several books. Professor Vives
is the author of Oligopoly Pricing: Old Ideas and New Tools (MIT Press,
2000), co-editor of Capital Markets and Financial Intermediation (Cam-
bridge University Press, 1993), and now serves as editor of the European
Economic Review, co-editor of the Journal of Economics and Manage-
ment Strategy, and associate editor of the Rand Journal of Economics
and the Journal of Financial Markets. He is a Fellow of the Economet-
ric Society and has received several prizes, including the Premio Juan
Carlos I in 1988 for research in social science and the Societat Catalana
de Economia Prize in 1996.

Corporate Governance
Theoretical and Empirical Perspectives
Edited by
XAVIER VIVES
Institut d'Analisi Economica, CSIC, Barcelona
CAMBRIDGE
UNIVERSITY PRESS
PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE
The Pitt Building, Trumpington Street, Cambridge, United Kingdom
CAMBRIDGE UNIVERSITY PRESS
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© Institut Catala de Finances 2000
This book is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.
First published 2000
Typeface Times Roman 10/12 pt. System QuarkXPress [BTS]
A catalog record for this book is available from the British Library.
Library of Congress Cataloging in Publication Data
Corporate governance : theoretical and empirical perspectives / edited by Xavier Vives.
p. cm.
Includes index.
ISBN 0-521-78164-7
1. Corporate governance. I. Vives, Xavier.
HD2741.C779 2000
658.4 - dc21 99-059175
ISBN 0 521 781647 hardback
Transferred to digital printing 2004
The Institut Catala de Finances, founded in 1985, is a public credit
institution which is owned 100% by the Generalitat de Catalunya. To
date it has granted close to 1,000 million euro in loans and guarantees
for investment projects, mostly to small and medium-sized
enterprises in the industrial and service sectors.
Contents
Preface page vii
Contributors viii
1 Corporate Governance: Does It Matter? 1
XAVIER VIVES
I Introduction 1
II An Overview of Corporate Governance Systems 2
III The Agency Approach to Corporate Governance:
Where Do We Stand? 4
IV Criticism of the Standard View 9
V New Ideas and Results 12
VI Conclusion 15
2 Corporate Governance and Competition 23
FRANKLIN ALLEN and DOUGLAS GALE
I Introduction 23
II Different Concepts of the Firm 25
III The Role of Competition 56
IV An Evolutionary Approach 62
V Competition for Markets: A Parable 67
VI Concluding Remarks 76
Discussion 84
A Jorge Padilla 84
B Monika Schnitzer 90
3 On the Economics and Politics of Corporate Finance and
Corporate Control 95
MARTIN HELLWIG
I Introduction 95
II Corporate Finance and Corporate Control 100
III Allocative Implications of Management Autonomy 112
IV The Politics of Corporate Control 122
Discussion 134
Andrei Shleifer 134
v
CONTENTS
4 How Do Financial Systems Affect Economic Performance? 137
WENDY CARLIN and COLIN MAYER
I Introduction 137
II Financial and Corporate Systems and Economic
Performance 139
III Financial Development and Economic Growth 144
IV Financial Systems, Corporate Systems, and Types of
Economic Activity: Theory 147
V Financial Systems, Corporate Systems, and Types of
Economic Activity: Empirical Evidence 152
VI Conclusions 156
Discussion 160
A Marco Betch 160
B Vicente Salas 166
5 Information and Governance in the Silicon Valley Model 169
MASAHIKO AOKI
I Stylized Factual Background 171
II The Information Systemic Characteristic of the Silicon
Valley Model 175
III Governance of Innovation by Tournament 184
IV Further Institutional Ramifications of the Venture Capital
Governance 190
V Conclusions 193
Discussion 196
Miguel A. García-Cestona 196
6 The Governance of the New Enterprise 201
RAGHURAM G. RAJAN and LUIGI ZINGALES
I How Firms Differ from Markets 203
II The Traditional Corporation in the Time of Berle and
Means 207
III Changes and Cause of Changes 210
IV Power in a Human Capital Organization 214
V Consequences for Enterprise Governance 221
VI Conclusions 224
Discussion 227
A Carmen Matutes 227
B Joan Enric Ricart 229
Index 233
vi
Preface
Corporate governance is an active area of research and public debate.
The recent generalization of "shareholder value" ideas and institutional
investment, the establishment of codes of best practice for boards of
directors and the controversy about whether market-oriented or bank-
oriented or relations-based systems are best for economic performance
are examples of the interest in the topic. The outcome of the debate is
important as well for developing countries and transition economies.
The present volume contains papers presented at a conference on
"New Ideas in Corporate Governance," held in Barcelona in October
1998, organized by the Institut d'Analisi Economica (CSIC) and spon-
sored by the Institut Catala de Finances (Generalitat de Catalunya).
The aim of the volume is to present new developments, theoretical and
empirical, in the study of corporate governance. The volume opens with
an introduction to the topic, taking stock of received knowledge, sum-
marizing the contribution of the different chapters, and offering a point
of view about the relevance of corporate governance. The following
chapters deal with the role of competition and its interaction with cor-
porate governance, the political economy of corporate governance, the
effects of different corporate governance systems on growth and per-
formance, the governance system by venture capital in Silicon Valley, and
human capital and control in the new corporation.
I am grateful to the Institut Catala de Finances for making this
project possible, in particular to its director Ernest Sena, and also to
Gemma Gimeno, and to Angela Hernandez for efficient secretarial
assistance.
vn
Contributors
Franklin Allen Colin Mayer
Department of Finance, The Said Business School of
Wharton School Management Studies
University of Pennsylvania University of Oxford
Jorge Padilla
Masahiko Aoki
Center for Monetary and
Department of Economics
Financial Studies
Stanford University
CEMFI, Madrid
Marco Betch
Raghuram G. Raj an
ECARE
Graduate School of Business
Free University of Brussels
University of Chicago
Wendy Carlin Joan Enric Ricart
Department of Economics IESE, Barcelona
University College London
Vicente Salas
Douglas Gale Department of Economics
Department of Economics University of Zaragoza
New York University
Monika Schnitzer
Department of Economics
Miguel A. Garcia-Cestona
University of Munich
Department of Economics
Universitat Autonoma de Andrei Shleifer
Barcelona Department of Economics
Harvard University
Martin Hellwig
Department of Political Xavier Vives
Economics Institute of Economic Analysis
University of Mannheim CSIC, Barcelona
Carmen Matutes Luigi Zingales
Institute of Economic Analysis Graduate School of Business
CSIC, Barcelona University of Chicago
vin