Showing papers on "Corporate governance published in 2000"

The New Institutional Economics: Taking Stock, Looking Ahead

Abstract: This paper examines the progressive development of the new institutional economics over the past quarter century. It begins by distinguishing four levels of social analysis, with special emphasis on the institutional environment and the institutions of governance. It then turns to some of the good ideas out of which the NIE works: the description of human actors, feasibility, firms as governance structures, and operationalization. Applications, including privatization, are briefly discussed. Its empirical successes, public policy applications, and other accomplishments notwithstanding, there is a vast amount of unfinished business.

Governance, Politics and the State

Abstract: Introduction: What is Governance? PART 1: PERSPECTIVES ON GOVERNANCE Different Ways to Think About Governance Conceptual and Theoretical Perspectives on Governance Why the Concern with Governance Now? PART II: MODELS OF GOVERNANCE Governance at Three Levels Scenario 1: Reasserting Control Scenario 2: Letting Other Regimes Rule Communitarianism, Deliberation, Direct Democracy and Governance PART III: GOVERNANCE AND THE STATE States in Transition Conclusions: Rethinking States and Governance

Maximizing shareholder value: a new ideology for corporate governance

Abstract: Over the past two decades the ideology of shareholder value has become entrenched as a principle of corporate governance among companies based in the United States and Britain. Over the past two or three years, the rhetoric of shareholder value has become prominent in the corporate governance debates in European nations such as Germany, France and Sweden. Within the past year, the arguments for ‘maximizing shareholder value’ have even achieved prominence in Japan. In 1999 the OECD issued a document, The OECD Principles of Corporate Governance, that emphasizes that corporations should be run, first and foremost, in the interests of shareholders (OECD, 1999)

The Enterprise University: Power, Governance and Reinvention in Australia

Abstract: 1. Introduction 2. Roots of the enterprise university (1): from policy to governance 3. Roots of enterprise university (2): from academy to global business 4. Territories and strategies: executive power in the enterprise university 5. College and corporation: institutional power in the enterprise university 6. Economics of invention: research power in the enterprise university 7. Many paths, one purpose: diversity in the enterprise university 8. Conclusion.

Corporate communication and impression management - New perspectives why companies engage in corporate social reporting

Abstract: This paper addresses the theoretical framework on corporate social reporting. Although that corporate social reporting has been analysed from different perspectives, legitmacy theory currently is the dominating perspective. Authors employing this framework suggest that social and environmental disclosures are responses to both public pressure and increased media attention resulting from major social incidents such as the Exxon Valdez oil spill and the chemical leak in Bhopal (India). More specifically, those authors argue that the increase in social disclosures represent a strategy to alter the public's perception about the legitimacy of the organisation. Therefore, we suggest using corporate communication as an overarching framework to study corporate social reporting in which “corporate image” and “corporate identity” are central.

Fraudulent Financial Reporting: Consideration of Industry Traits and Corporate Governance Mechanisms

Abstract: This paper provides insight into financial statement fraud instances investigated during the late 1980s through the 1990s within three volatile industries—technology, health care, and financial services—and highlights important corporate governance differences between fraud companies and no‐fraud benchmarks on an industry‐by‐industry basis. The fraud techniques used vary substantially across industries, with revenue frauds most common in technology companies and asset frauds and misappropriations most common in financial‐services firms. For each of these three industries, the sample fraud companies have very weak governance mechanisms relative to no‐fraud industry benchmarks. Consistent with prior research, the fraud companies in the technology and financial‐services industries have fewer audit committees, while fraud companies in all three industries have less independent audit committees and less independent boards. In addition, this study provides initial evidence that the fraud companies in the techno...

Debating Governance: Authority, Steering, and Democracy

Abstract: Leading scholars in the field of governance examine the effectiveness of the different non-institutional strategies at the disposal of modern governments in tackling issues of urban decline, public administrations, governmental regionalization, budget deficits and global economics. The governance approach to political science yields a new perspective on the role of the state, domestically as well as in the international arena. Globalization, internationalization, and the growing influence of networks in domestic politics means that the notions of state strength and the role of the state in society must re-examined.

In Search of New Foundations

Abstract: In this paper I argue that corporate finance theory, empirical research, practical applications, and policy recommendations are deeply rooted in an underlying theory of the firm. I also argue that although the existing theories have delivered very important and useful insights, they seem to be quite ineffective in helping us cope with the new type of firms that is emerging. I outline the characteristics that a new theory of the firm should satisfy and how such a theory could change the way we do corporate finance, both theoretically and empirically. FOR A RELATIVELY YOUNG RESEARCHER like myself, there is a very strong tendency to look at the history of corporate finance and be overwhelmed by the giants of the recent past. A field that 40 years ago was little more than a collection of cookbook recipes that ref lected practitioners’ common sense is today a bona fide discipline, taught not only to future practitioners but also to doctoral students, both in business schools and in economic departments—a discipline whose ideas are now inf luencing other areas of economics, such as industrial organization, monetary policy, and asset pricing. The quality and the impact of the contributions that were made to the field during the last 40 years, and in particular in the period from the late 1970s to the late 1980s, justify the widespread feeling that the “golden age” of corporate finance is behind us. Two excellent recent surveys of the main areas of corporate finance reinforce this sense: the capital structure survey by Harris and Raviv ~1991! and the corporate governance survey by Shleifer and Vishny ~1997!. Both are very lucid categorizations of the existing literature. This lucidity is the product not only of the ability of their authors but also of the ripeness of the moment. Both surveys follow a period of intense activity in the field, and in a certain sense, they close it. It is especially noteworthy that, 10 years later, the survey by Harris and Raviv ~1991! would not necessitate any dramatic rewriting. Although there have certainly been important contributions afterward, they have been mostly empirical, and they have not undermined the conceptual framework underlying Harris and Raviv’s analyses.

Financial Accounting Information, Organizational Complexity and Corporate Governance Systems

Abstract: The purpose of this paper is to investigate how governance systems of large public U.S. corporations vary with information properties of numbers produced by their financial accounting systems. We argue that in firms whose current accounting numbers do a relatively poor job of capturing the effects of the firm's current activities and outcomes on shareholder value, the accounting numbers are less effective in the governance setting. We predict that such firms will substitute costly governance mechanisms to compensate for their less useful accounting numbers. We explore whether governance systems vary with the timeliness of earnings by examining the cross-sectional relation between proxies for earnings timeliness and subsequent corporate governance systems of 784 firms in the Fortune 1000. The governance systems we consider include board composition, stockholdings of inside and outside directors, ownership concentration and the structure of executive compensation. Our results support a significant negative relation between our timeliness metrics and subsequent costly corporate governance mechanisms after controlling for other firm characteristics.

Privatization in Emerging Economies: An Agency Theory Perspective

Abstract: The ineffectiveness of several privatized firms within emerging economies underscores the importance of agency theory issues and their impact on the privatization-performance relationship. The authors argue that weak governance and limited protection of minority shareholders intensify traditional principal-agent problems (perquisite consumption and entrenchment) and create unique agency problems (expropriation). The authors suggest that postprivatization performance can be enhanced by using appropriate ownership, management, and corporate structures that mitigate agency problems in the context of weak governance, and they highlight avenues for research.

Learning by interaction, absorptive capacity, cognitive distance and governance

Abstract: This article analyses problems and solutions in thegovernance of knowledge exchange and joint knowledgeproduction. The analysis is based on a theory whichcombines elements of transaction cost economics,social exchange theory and theory of knowledge. Thetheory of knowledge yields an analysis of absorptivecapacity, communicative capacity and learning byinteraction. In that setting, the paper analysesproblems of governance: hold-up problems as a resultof specific investments in setting up knowledgeexchange, spill-over problems, a trade-off betweenstability and change of exchange relations, and atrade-off between novelty and understandability(`cognitive distance'). A survey is given ofcontingencies that affect the size of problems and theefficacy of instruments for their governance.

"Seize the State, Seize the Day" : State Capture, Corruption, and Influence in Transition

Abstract: In a decade of transition, fear of a leviathan state is giving way to increased focus on oligarchs who "capture the state." In the capture economy, the policy and legal environment is shaped to the captor firm`s huge advantage, at the expense of the rest of the enterprise sector. This has major implications for policy. The main challenge of the transition has been to redefine how the state interacts with firms, but little attention has been paid to the flip side of the relationship: how firms influence the state-especially how they exert influence on and collude with public officials to extract advantages. Some firms in transition economies have been able to shape the rules of the game to their own advantage, at considerable social cost, creating what Hellman, Jones, and Kaufmann call a "capture economy" in many countries. In the capture economy, public officials and politicians privately sell underprovided public goods and a range of rent-generating advantages "a la carte" to individual firms. The authors empirically investigate the dynamics of the capture economy on the basis of new firm-level data from the 1999 Business Environment and Enterprise Performance Survey (BEEPS), which permits the unbundling of corruption into meaningful and measurable components. They contrast state capture (firms shaping and affecting formulation of the rules of the game through private payments to public officials and politicians) with influence (doing the same without recourse to payments) and with administrative corruption ("petty" forms of bribery in connection with the implementation of laws, rules, and regulations). They develop economywide measures for these phenomena, which are then subject to empirical measurement utilizing the BEEPS data. State capture, influence, and administrative corruption are all shown to have distinct causes and consequences. Large incumbent firms with formal ties to the state tend to inherit influence as a legacy of the past and tend to enjoy more secure property and contractual rights and higher growth rates. To compete against these influential incumbents, new entrants turn to state capture as a strategic choice-not as a substitute for innovation but to compensate for weaknesses in the legal and regulatory framework. When the state underprovides the public goods needed for entry and competition, "captor" firms purchase directly from the state such private benefits as secure property rights and removal of obstacles to improved performance-but only in a capture economy. Consistent with empirical findings in previous research on petty corruption, administrative corruption-unlike both capture and influence-is not associated with specific benefits for the firm. The focus of reform should be shifted toward channeling firms' strategies in the direction of more legitimate forms of influence, involving societal "voice," transparency reform, political accountability, and economic competition. Where state capture has distorted reform to create (or preserve) monopolistic structures supported by powerful political interests, the challenge is particularly daunting. This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute; the Public Sector Group, Europe and Central Asia Region; and the Office of the Chief Economist, European Bank of Reconstruction and Development - is part of an empirical project on governance in transition. For an electronic version of this paper and related research papers and governance data, visit www.worldbank/wbi/governance/. The authors may be contacted at jhellman@worldbank.org or dkaufmann@worldbank.org.

Governance, good governance and global governance: conceptual and actual challenges

Abstract: This article takes seriously the proposition that ideas and concepts, both good and bad, have an impact on international public policy. It situates the emergence of governance, good governance and global governance, as well as the UN's role in the conceptual process. Although 'governance' is as old as human history, this essay concentrates on the intellectual debates of the 1980s and 1990s but explores such earlier UN-related ideas as decolonisation, localisation and human rights, against which more recent thinking has been played out. A central analytical perspective is the tension between many academics and international practitioners who employ 'governance' to connote a complex set of structures and processes, both public and private, while more popular writers tend to use it synonymously with 'government'.

Contracts, Norms, and Plural Form Governance

Abstract: The organization of interfirm exchanges has become of critical importance in today’s business environment. Many scholars have criticized the inadequacies of legal contracts as mechanisms for governing exchange, especially in the face of uncertainty and dependence. Other scholars argue that it is not the contracts per se but the social contexts in which they are embedded that determine their effectiveness. This study investigates the performance implications of governance structures involving contractual agreements and relational social norms, individually and in combination (plural form) under varying conditions and forms of transactional uncertainty and relationship-specific adaptation. Hypotheses are developed and tested on a sample of 396 buyer-seller relationships. The results provide support for the plural form thesis—increasing the relational content of a governance structure containing contractual agreements enhances performance when transactional uncertainty is high, but not when it is low. Implications for theory and future research are discussed.

Value Driven Intellectual Capital: How to Convert Intangible Corporate Assets Into Market Value

Abstract: From the Publisher: Value-Driven Intellectual Capital is a corporate and financial executives' handbook to the new world of intangible assets - what they are and how to convert them into cash or strategic position. Value-Driven Intellectual Capital explains the new, boundary-expanding world of intellectual assets - where translating an innovative idea into bottom-line profits involves a tightly focused strategy with clear directives for making it happen. It is a blueprint for turning corporate knowledge, know-how, and intellectual property into a sustainable competitive weapon that will build a firm's reputation and market share." "Value-Driven Intellectual Capital is for any corporate or financial executive, merger and acquisition partner or investor who understands how much future corporate survival and success depends on the simple enduring genius of a good idea and the need to convert those ideas into corporate value.

Going Public without Governance: Managerial Reputation Effects

Abstract: This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices of such companies are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard. RECENT EMPIRICAL RESEARCH INDICATES THAT in many countries the relevant corporate finance issue is not the traditional agency problem between management and shareholders, but rather the agency problem between the controlling shareholders and the minority shareholders. This problem may arise in some countries for two reasons: ~1! the corporate governance structure of public companies insulates large shareholders—that is, those with a majority of the votes and often with an involvement in the firm’s management—from takeover threats or monitoring; 1 and ~2! the legal system does not protect minority shareholders because of either poor laws or poor enforcement of laws. 2 Despite the lack of protection for minority shareholders, the average ratio of stock market capitalization held by minorities to gross national product is greater than 40 percent in a sample of 49 countries. 3 This raises the question of why people are willing to be minority shareholders when they know

The prince and the pauper? ceo pay in the

Abstract: We document differences in CEO pay and incentives in the United States and the United Kingdom for 1997. After controlling for size, sector and other firm and executive characteristics, CEOs in the US earn 45% higher cash compensation and 190% higher total compensation. The calculated effective ownership percentage in the US implies that the median CEO receives 1.48% of any increase in shareholder wealth compared to 0.25% in the UK The differences, can be largely attributed to greater share option awards in the US arising from institutional and cultural differences between the two countries. Corporate governance practices in the United Kingdom received increased attention in the 1990s, culminating in influential reports issued by the Cadbury (1992), Greenbury (1995) and Hampel (1998) committees. Among other recommendations, the reports outlined a best-practice framework for setting executive pay, and significantly expanded disclosure rules for UK executive compensation. The Greenbury and Hampel reports were, in part, a response to a growing controversy over chief executive officer (CEO) pay levels triggered when executives in several recently privatised electric utilities exercised share options worth millions of pounds. However, in spite of these reports, CEO pay levels rose more than 18% in 1997 alone, even as publicsector workers were being asked to accept raises of less than 3% (Buckingham and Cowe, 1998 a,b). The continuing controversy, coupled with enhanced data availability through the new disclosure requirements, has sparked considerable academic interest in UK executive pay practices. Although CEO pay levels in the United Kingdom have grown in recent years, they remain far behind pay levels enjoyed by CEOs in the United States. The international pay gap is especially pronounced after including gains realised from exercising share options. Chief executives in the 500 largest UK companies in aggregate made ?330 million (or ?660,000 each) in 1997, including ?74 million from exercising options. In contrast, the top 500 US CEOs made in aggregate ?3.2 billion (or ?6.3 million each), including ?2.0 billion from option exercises.' Indeed, Disney's Michael Eisner, dubbed by pay-critic Graef Crystal

Are You Being Served? Political Accountability and Quality of Government

Abstract: This paper explores, both formally and empirically, the political accountability mechanisms that lie behind the varying levels of public corruption and of effective governance taking place across nations. The first section develops a principal-agent model in which good governance is a function of the extent to which citizens can hold political officials accountable for their actions. Although policy-makers may have strong incentives to appropriate parts of the citizens` income, well-designed institutions (those increasing both informational flows and elite competitiveness) boost political accountability and reduce the space left for the appropriation of rents. The following sections of the paper test the model. The presence of democratic mechanisms of control and an increasingly informed electorate, measured through the frequency of newspaper readership, explain considerably well the distribution of corrupt practices and governmental ineffectiveness in three types of data sets: a large cross-section of countries in the late 1990s for which an extensive battery of governance indicators has been recently developed by Kaufmann et al. (1999a); a panel data set for the period 1980-95 and about 100 nations on corruption and bureaucratic quality based on experts` rankings; and corruption data for the cross-section of US states in the period 1977-95.

Managing marketing channel opportunism: The efficacy of alternative governance mechanisms

Abstract: The authors examine three governance mechanisms according to how well they mitigate opportunism in marketing channels. Using the U.S. hotel industry as the research context, the authors investigate how opportunism is limited by (1) ownership, (2) investment in transaction-specific assets, and (3) norms of relational exchange. They also investigate how various combinations of these governance mechanisms affect opportunistic behavior in hotel channels. Overall, the results generally support emphasizing relational norms in managing opportunism in marketing channels. The results also indicate that opportunism can be exacerbated when ownership or investments in transaction-specific assets are accentuated as governance mechanisms.

The Global Public Management Revolution: A Report on the Transformation of Governance

Abstract: Over the last two decades, governments around the world have launched ambitious efforts to reform the way they manage their programs. Citizens in nations like Mongolia and Sweden, New Zealand, and the United States have demanded smaller, cheaper, more effective governments. They have also asked for more programs and better services. To resolve this paradox, governments have experimented with scores of ideas to be more productive, to improve performance, and to reduce costs. In The Global Public Management Revolution , Donald F. Kettl charts the basic models of reform that are being employed worldwide, including New Zealand's "new public management," the U.S. effort at "reinventing government," and related efforts in developed and developing nations. In reviewing the standard strategies and tactics behind these reforms, Kettl has identified six common core ideas: the search for greater productivity; more public reliance on private markets; a stronger orientation toward service; more decentralization from national to subnational governments; increased capacity to devise and track public policy; and tactics to enhance accountability for results. Kettl predicts that reform and reinvention will likely become mantras for governments of all stripes, requiring the instinct for reform to be hardwired into government practice. Ultimately, this strategy means coupling the reform impulse with governance --government's increasingly important relationship with civil society and the institutions that shape modern life.

Concentrated Corporate Ownership

Abstract: Standard economic models assume that many small investors own firms. This is so in most large US firms, but wealthy individuals or families generally hold controlling blocks in smaller US firms and in all firms in most other countries. Given this, the lack of theoretical and empirical work on tightly held firms is surprising. What corporate governance problems arise in tightly held firms? How do these differ from corporate governance problems in widely held firms? How do control blocks arise and how are they maintained? How does concentrated ownership affect economic growth? How should we regulate tightly held firms? Drawing together leading scholars from law, economics and finance, this volume examines the economic and legal issues of concentrated ownership and their impact on a shifting global economy.

The new social audits: accountability, managerial capture or the agenda of social champions?

Abstract: Drawing upon a series of interviews conducted with leading practitioners and opinion formulators in the social, ethical and environmental audit arena, together with an extensive review of recent literature in the area, this paper offers a critical appraisal of current developments in the newly revitalized social audit movement. We particularly question whether in their enthusiasm for bringing social audit into the mainstream of current business thinking its advocates risk compromising the democratic ideals of the founding fathers of the movement. A particular concern raised is that without real change in corporate governance structures, social audit could become monopolized by consultants and/or corporate management and hence amount to little more than a skilfully controlled public relations exercise.

Governance in a Globalizing World

Abstract: An exploration of the impact of governance on culture, economics, security and the environment in a globalized world. The book aims to answer three questions: how are patterns of globalization currently evolving?; how do these patterns affect governance?; and how might globalism itself be governed?

Russian Privatization and Corporate Governance: What Went Wrong?

Abstract: In Russia and elsewhere, proponents of rapid, mass privatization of state-owned enterprises (ourselves among them) hoped that the profit incentives unleashed by privatization would revive faltering, centrally planned economies. Instead, the Russian economy has shrunk steadily since 1991 and suffered a major collapse in 1998, which exposed deep structural flaws in the privatization effort. We offer here some partial explanations. First, rapid mass privatization of medium and large firms is likely to lead to massive self-dealing by managers and controlling shareholders unless (implausibly in the initial transition from central planning to markets) a country has a good infrastructure for controlling self-dealing. Russia accelerated the self-dealing process by selling control of many of its largest enterprises cheaply to crooks, who got the funds to buy the enterprises by skimming from the government, and transferred their skimming talents to the enterprises they acquired. Second, profit incentives to restructure privatized businesses and create new ones can be swamped by the burden on business imposed by a combination of (among other things) a punitive tax system, official corruption, organized crime, and an unfriendly bureaucracy. Third, while self-dealing will still occur (though perhaps to a lesser extent) if state enterprises aren’t privatized, since self-dealing accompanies privatization, it politically discredits privatization as a reform strategy and can undercut longer-term reform efforts. A principal lesson is that developing the infrastructure to control self-dealing is central to successful privatization of large firms -as important, and in the early stages, perhaps more important than privatization itself. Please address comments to: Professor Bernard Black Stanford Law School Stanford CA 94305 bblack@stanford.edu * We thank Kevin Covert, Richard Craswell, David Ellerman, Itzhak Goldberg, Dale Gray, Hugh Patton, Michael Klausner, Peter Murrell, John Nellis, Katarina Pistor, Andrei Shleifer, Alexander Yushkevich, and [to come], and participants in workshops at the American Law and Economics Association, an OECD Conference on Corporate Governance in Russia, an IMF Workshop on Comparative Corporate Governance in Developing and Transition Economies, Stanford Law School, and University of California Berkeley, Haas School of Business and [to come] for helpful discussions and comments. Special thanks to James Fenkner of Troika Dialog for the data on Russian market capitalization and comparable Western values for Russian companies reported in Part III of this article.

Disciplining Democracy: Development Discourse and Good Governance in Africa

Abstract: * Acknowledgments * Introduction * 1. Democratisation and Development Discourse * 2. New World Order, New Development Discourse * 3. The Seductiveness of Good Governance * 4. The Democratisation of Poverty * 5. Whose Democracy? * 6. Economic Liberalisation and Democratic Erosion * 7. The Success of the Good Governance Discourse

Information Privacy: Corporate Management and National Regulation

Abstract: The 1990s have seen a resurgence of interest in information privacy. Public opinion surveys show that many citizens are becoming greatly concerned about threats to their information privacy, with levels of such concern reaching all-time highs. Perhaps as a response to the growing concerns of citizens, the media are devoting more attention to privacy issues, and governmental regulation of the corporate privacy environment is increasing in many countries. Almost all developed countries have grappled with the trade-offs between open access to information--which enables economic efficiency--and an individual's right to privacy. Consistent with these trade-offs, many recent incidents suggest that regulatory approaches to information privacy, corporate management of personal data, and consumer reactions are becoming tightly interwoven around the world. To provide some insights into these relationships, we develop a conceptual model and test it with a cross-cultural sample from 19 different countries.In general, we find that a country's regulatory approach to the corporate management of information privacy is affected by its cultural values and by individuals' information privacy concerns. In addition, as governments become more involved in the corporate management of information privacy, internal management of such issues seems to tighten. This result supports previous observations that most firms take a primarily reactive approach to managing privacy by waiting for an external threat before crafting cohesive policies that confront their information practices. Moreover, when corporations are not perceived to adequately manage information privacy issues, and/or when privacy concerns rise, individuals are more inclined to prefer government intervention and be distrustful of firm self-regulation. As such, citizens may look to lawmakers to enact stricter regulation to reduce their privacy concerns. These findings and several international trends suggest that the self-regulatory model of privacy governance may not be sustainable over the long term.Findings from this research constitute an important contribution to the emerging theoretical base of information privacy research and should be particularly enlightening to those managing information privacy issues. Several directions for future research are also discussed.