Showing papers on "Corporate group published in 2001"

Estimating the performance effects of business groups in emerging markets

Abstract: Business groups—confederations of legally independent firms—are ubiquitous in emerging economies, yet very little is known about their effects on the performance of affiliated firms. We conceive of business groups as responses to market failures and high transaction costs. In doing so, we develop hypotheses about the effects of group affiliation on firm profitability: affiliation could either boost or depress firm profitability, and members of a group are likely to earn rates of return similar to other members of the same group. Using a unique data set compiled largely from local sources, we test for these effects in 14 emerging markets: Argentina, Brazil, Chile, India, Indonesia, Israel, Mexico, Peru, the Philippines, South Africa, South Korea, Taiwan, Thailand, and Turkey. We find evidence that business groups indeed affect the broad patterns of economic performance in 12 of the markets we examine. Group affiliation appears to have as profound an effect on profitability as does industry membership, yet strategy scholars have a much clearer grasp of industries than of groups. Moreover, membership in a group raises the profitability of the average group member in several of the markets we examine. This runs contrary to the wisdom, conventional in advanced economies, that unrelated diversification depresses profitability. Overall, our findings suggest that the roots of sustained differences in profitability may vary across institutional contexts; conclusions drawn in one context may well not apply to another. Copyright © 2001 John Wiley & Sons, Ltd.

Annual reporting practices: Information about human resources in corporate annual reports in major Swedish companies

Abstract: In this article the aim is to report from two empirical studies of annual reporting of intellectual capital (IC), with particular emphasis on human resources (HR) in Swedish companies. The studies were made on the largest Swedish companies on the stock market's A‐list, during the years 1990, 1994 and 1998. The material used was the external annual reports. In the studies we wanted to assess the extent to which large companies are publicly reporting their IC. The research aimed to investigate the reporting practices in Swedish companies. The research question was to determine if company representatives' desire to make HR more transparent is merely an expression that is not supported by real conviction. The studies showed that there is a very low share of information disclosed about human resources in the corporate annual reports. A tendency to increase was evident, but it is, on average, below 4%. None of the 18 largest companies were above 7%, which reveals that there is a lack of good examples to be found in this group of companies and very little changes had taken place during the past 10 years. It must be concluded that a great deal is often said about the importance of having a more transparent HR or human capital in companies, but the evidence suggests that in the real world this is still not the case.

Exchange structures in transition: Lending and trade relations in Chinese Business Groups

Abstract: The networks of interfirm relations that developed in business groups during economic transition are central to China's reform and are becoming an important part of the country's emergent economic structure. Using a recent and original data set that includes direct observations of economic choices made by firms, the process by which these interfirm lending and trade ties emerged and evolved in the early stages of reform is explored. Initially, information from sources external to the network dominated the formation and direction of exchange relations. Firms turned to their prior connections, took advantage of market position, and drew on bureaucratic power to develop alliances. Over time, internal influences gained importance, and managers increasingly drew on internal nontrade relations and other indicators inside the business group to identify lending and trade partners. The results demonstrate the central but changing role that social relations and environmental cues played in the creation of economic structure during China's transition. This study also contributes to an understanding of the processes of organizational adaptation to a major economic transition and interfirm alliance formation more generally. The findings reveal that firms select exchange partners of known reputation and solicit relations that reduce uncertainty, even when there is a cost involved

Board governance and company performance: any correlations?

Abstract: There persists the belief that a firm’s only responsibility to society is to maximize profits without breaking the law, hence the role of corporate governance is to provide appropriate corporate control. Research suggests that there is a growing perception that corporations are social entities overall, answerable to social constituencies and that the role of corporate governance is to understand and adequately address the interest of such social and political constituents. A review of research studies in the area of corporate governance’s contribution to corporate performance reveals that there is no conclusive evidence of contribution. Moreover, it illuminates the need for a boarder criteria of performance and for the adoption of a political model of corporate governance in order to facilitate a corporation’s external accountabilities.

Business groups, financing constraints, and investment: the case of India

Abstract: We examine the effect of business group affiliation on corporate investment behavior in India. We use a data set containing 684 Indian listed companies for the 1989-1997 period. We estimate a simple investment equation and find evidence that cash flow has a positive effect on investment spending of stand-alone firms, whereas for group affiliates cash flow is either insignificant or has a much lower coefficient. This suggests that business group affiliates have better access to external funds than stand-alone firms.

Contests for Corporate Control: Corporate Governance and Economic Performance in the United States and Germany

Abstract: During the 1990s, corporate governance became a hot issue in all of the advanced economies. For decades, major business corporations had reinvested earnings and developed long-term relations with their labour forces as they expanded the scale and scope of their operations. As a result, these corporations had made themselves central to resource allocation and economic performance in the national economies in which they had evolved. Then, beginning in the 1980s and picking up momentum in the 1990s, came the contests for corporate control. Previously silent stockholders, now empowered by institutional investors, demanded that corporations be run to 'maximize shareholder value'. In the United States many, if not most, top corporate executives have now embraced this ideology. In this highly original book, Mary O'Sullivan provides a critical analysis of the theoretical foundations for the shareholder value principle of corporate governance and for the alternative perspective that corporations should be run in the interests of 'stakeholders'. She embeds her arguments on the relation between corporate governance and economic performance in historical accounts of the dynamics of corporate growth in the United States and Germany over the course of the twentieth century. O'Sullivan explains the emergence and consequences of 'maximizing shareholder value' as a principle of corporate governance in the United States over the past two decades, and provides unique insights into the contests for corporate control that have unfolded in Germany over the past few years.

From Industrial Relations to Investor Relations? Persistence and Change in Japanese Corporate Governance, Employment Practices and Industrial Relations

Abstract: The international drift towards corporate governance reform changed into a higher gear in the latter half of the 1990s. As the process of corporate governance reform unfolded, it brought into sharp relief contrasts between three different models of corporate governance: the classical model, the enlightened shareholder value model and the pluralist model.The corporate governance reforms envisaged by the Keizai Doy0kai and Nikkeiren employers' associations can be classified under the pluralist model. However, the findings of an extensive questionnaire survey conducted on executive managers of large firms suggest that the enlightened shareholder value model seems to be supported by one out of every three executive managers in Japan. Spurred by reforms of the Commercial Code and other laws relating to corporate governance, major firms are increasingly looking to establish a system of consolidated management encompassing the entire corporate group, with emphasis on maximizing capital efficiency.Taking place in parallel with this development are changes in employment practices. Although long-term stable employment practices are not likely to be changed drastically in the foreseeable future, it is highly likely that the seniority system will be further eroded, wage differentials will widen, terms of employment and working conditions will become individual-specific, and remuneration systems will be diversified. However, labour unions are failing to find ways of coping with these prospects, and are continuing to lose influence.

Corporate Groups and Crossborder Insolvencies: A Canada-United States Perspective

Abstract: CORPORATE GROUPS AND CROSSBORDER INSOLVENCIES: A CANADA - UNITED STATES PERSPECTIVE* I. INTRODUCTION World trade and international investments have expanded rapidly over the past twenty-five years.1 Not surprisingly, there has been a corresponding increase in the number of crossborder insolvencies involving multinational enterprises, large and small,2 which has fueled the drive for greater harmonization among the many different national rules governing the treatment of crossborder insolvencies. Canada and the United States are very active participants on both sides of this phenomenon. The two countries are each other's largest trading partners, with over eighty percent of Canada's external trade being with the United States.3 Similarly, there has been a steady increase in the number of crossborder insolvencies that have come before the courts of both countries in which Canadian and U.S. bankruptcy4 judges have been called upon to recognize each other's proceedings and to cooperate closely with a view to maximizing returns for creditors in the liquidation of assets or to help bring about the reorganization of an ailing enterprises.5 The literature describing these developments, both North American and overseas, is very substantial, but there is one aspect that does not appear to have received the attention it deserves.6 These are the problems particular to the reorganization or liquidation of insolvent corporate groups. Large corporations are typically organized in groups.7 The group may have a few affiliates or a thousand or more.8 Given the close business bonds between Canada and the U.S., it is highly predictable that a U.S-centered group will have affiliates in Canada, and vice versa. For a variety of reasons, the failure of a major member of a group will often jeopardize the financial survival of the whole group. Consequently, it is very common in Canada and the U.S. for a corporate group to make a joint insolvency filing encompassing all or most of the members of the group, with a view to reorganizing the affairs of the whole enterprise or to bring about a going concern sale if that course of action should be decided upon.9 The consolidation may be procedural ("procedural consolidation") or, much less frequently, substantive in character ("substantive consolidations"). The evidence indicates that seventy per cent or more of major corporate restructurings in Canada and the U.S. are in some form of consolidated basis.10 This then raises the question, in the case of crossborder insolvencies, of how well the Canadian and U.S. bankruptcy rules and principles dovetail with one another to bring about successful joint proceedings in both countries. There is another side to the coin. The insolvency proceedings may be limited to one member of the group. Nevertheless, creditors of the insolvent company may argue that the parent company was so deeply implicated in the affairs of the failing affiliate that it should be held jointly responsible for the liabilities of the affiliate. Yet again, even if there is no attempt to hold the parent company directly liable, the trustee may argue that a claim the parent company may have against the affiliate should be subordinated to the claims of other creditors because the parent company abused its dominant position. These are familiar issues in domestic insolvency law.11 The question for consideration is how well they play out in a crossborder context where the parent company is U.S. based and the subsidiary is located in Canada, and vice versa with respect to a Canadian parent company and a U.S. based subsidiary. Having said this, I must also add quickly that most of the Canada-U.S. crossborder cases I am familiar with have involved problems of the first type, those arising from consolidated filings, and not from attempts to hold a parent company liable for the activities of its affiliates.12 II. Two PRELIMINARY POINTS A. …

Corporate Groups in Australia

Abstract: This article presents the results of an empirical study of the group structures in Australia's Top 500 listed companies. It also examines some of the key legal issues relating to corporate groups. These include issues associated with the definition of corporate group in the Corporations Act and regulatory approaches to corporate groups in Australia.

Company Law Reform in the UK

Abstract: The UK has embarked on a fundamental review of company law. The first stage of the process was completed in July 2001 and reform proposals are now being considered by the government. Modernisation of company law is part of a drive to facilitate enterprise and enhance the attractiveness of the UK as a location in which to do business. This paper, which was first prepared for the 9th Singapore Conference on International Business Law, considers how well the proposed new legal framework measures up as a regulatory product that will be attractive to business and foster business competitiveness. Proposals in three areas are examined closely: simplification so as to promote business creation and growth; corporate governance and directors' duties; and the institutional framework of regulation. I suggest that if the simplification proposals are implemented in their current form UK company law will become much clearer and more comprehensible. Greater clarity should ensure some competitive advantages. In the area of corporate governance and directors' duties, the strong, continuing preference for detailed legal rules suggests that policymakers are sceptical about the ability of the market to put in place effective corporate governance controls without significant state intervention. Whether the preference for detailed rues supported by tough (often criminal) sanctions strikes the right balance between managerial freedom and investor protection is open to question. With regard to the institutional framework of regulation, my assessment of the proposals to expand the regulatory responsibilities of accounting bodies so as also to cover general company law is that these seem likely to promote a shift away from self-regulation towards greater public institutionalisation of corporate regulation, a result that sits uneasily with the presumption against state intervention which was adopted as a guiding principle at the outset of the reform initiative.

Teaching Comparative Corporate Governance: The Significance of 'Soft Law' and International Institutions

Abstract: Scholars today are inquiring as to what, other than formal legal commands or lawsuits based thereon, influences the behavior of human actors in corporations. "Norms versus corporate law" has become a subject of symposia and other fora of inquiry. In that inquiry, arguably two neglected, overlapping aspects have been "soft law" and the role of international organizations such as the OECD, World Bank, IMF and the World Trade Organization (WTO). International and comparative scholars define soft law to include aspirational codes of conduct for corporate actors, corporate governance codes of best practices, treaty provisions, trade agreement provisions, and the like, all of "which may provide a conceptual framework for decisionmaking" in the corporate setting "but do not seriously constrain [corporate] decisionmakers." Codes of best practices also include a substantial comparative aspect as scholars and teachers compare the Vienot Report in France with the Cadbury Report in the UK, the ALI Corporate Governance Project and General Motors' 29 points in the United States, the Bosch Report in Australia and similar codes around the world. Newer codes of best practices include those in Italy, Korea and Japan. The growth of large multinational corporations and the collective action problem host nation states face in policing multinationals' activities highlight the need for study of soft law, the role of international organizations, and their effects on corporate activities with respect to core worker welfare and safety protections, environmental degradation, and similar subjects. The time may soon be arriving when these subjects have a place in the basic business organizations classes taught in law schools here in the United States as well as elsewhere.

Protection of Minority Shareholders, Investors and Creditors in Corporate Groups: the Strengths and Weaknesses of German Corporate Group Law

Abstract: German corporate group law (or rather, to be more precise, the German Recht der verbundenen Unternehmen, i.e., the law of affiliated companies, §§ 15 ff., 291 ff. Marketable Share Company Act [Aktiengesetz, abbreviated AktG]) owes its existence to special concerns of the German legislature at the end of the 1950s and the beginning of the 1960s regarding the ability to protect the interests of outsiders in group-dependent marketable share companies (Aktiengesellschaften). The interests of shareholders and creditors were considered to be so intensive, so inscrutable and so continuously endangered, that the legislature believed that the existing company law was incapable of satisfactorily providing the requisite protection.

Designing a Combined Reporting Regime for a State Corporate Income Tax: A Case Study of Louisiana

Abstract: This article presents a plan for revitalizing the Louisiana corporate income tax through the adoption of a combined reporting regime. Our plan would require affiliated companies engaged in a unitary business in the State to pay their Louisiana income tax based on an apportioned share of their combined income. Combined reporting is the only effective way for any state to impose a fair and uniform corporation income tax on multistate and multinational enterprises and to gain or maintain control over its own tax base. The current Louisiana corporate income tax is subject to abuse through tax planning techniques that are very familiar to members of the tax-avoidance community. California and other states that have adopted combined reporting have demonstrated that combined reporting fairly and effectively responds to most of these common tax avoidance techniques.Part II, below, discusses the potential benefits inuring to Louisiana from adopting a combined reporting regime. Those benefits are not mere speculation. California has been operating a combined reporting system successfully for nearly seven decades. In brief, the benefits are a uniform treatment of corporate groups without regard for differences in their organizational structure, a strong bulwark against the use of tax-haven jurisdictions to avoid state taxation, a significant reduction in administrative burdens on the tax department and on complying taxpayers, and the removal of the competitive disadvantage currently imposed on local firms that are unable to engage in cross-border tax-avoidance.In Part III, we address some basic issues in the design of an effective combined reporting regime. One of the important features of combined reporting is the use of a formula to apportion the unitary business income of a unitary enterprise between Louisiana and the rest of the relevant universe. Louisiana already uses formulary apportionment in its current corporate tax system. To operate a combined reporting regime, however, Louisiana must apply that formula not to the separate income of each corporation but to the combined income of a corporate group engaged in a unitary business in Louisiana. Yielding to political realities, we recommend that Louisiana offer companies a water?s edge election that would allow them to exclude from their combined report the income derived by certain foreign affiliates that do not have an obvious close tie to the unitary business conducted in Louisiana.Part IV addresses a variety of technical issues that Louisiana should address when adopting a combined reporting regime. We offer our views on how those issues should be resolved, drawing, when appropriate, on the experience of other combined-reporting states. Some of these issues relate to potential transition problems. Other issues relate to practical problems of assessing and collecting a tax from corporations operating in Louisiana on income that is computed by reference to the combined income of a unitary group.

Method and apparatus for providing integrated corporate foundry services

Abstract: The present invention provides a method for structuring a group of companies. In this structure, a financial and organizational foundation, termed a foundry entity hereinafter, is provided that includes not only financial backers for each of the companies that are being developed by the foundry entity, but also a group of individuals who have a variety of technical, marketing and management and other backgrounds. The group of individuals from the foundry entity is assigned to different ones of the companies being developed by the foundry. The personnel then become active participants in their respectively assigned member companies and provide the companies with a high level of experience, which naturally improves the knowledge and experience of the original founders and new employees beyond their initial knowledge and experience levels. Advantages of the invention include a structured environment where a group of companies can grow effectively and rapidly.

Ultra Vires Lives! A Stakeholder Analysis of Corporate Illegality (with Notes on How Corporate Law Could Reinforce International Law Norms)

Abstract: This paper argues that a remaining vestige of the ultra vires doctrine sets off illegal activities as "beyond the power" of corporations. Though largely unnoticed and unexamined until now, this part of the doctrine has been retained because none of the important corporate stakeholders has an interest in authorizing the corporation and its managers to commit illegal acts. From an ex ante perspective, the principal stakeholders in the corporate contract would want the corporation and its management to forego illegalities as a way to increase the value of the firm. Any of the stakeholders would be a potential victim of the corporation's lawbreaking and would want to receive assurances that they would not be harmed by such conduct. Even for the shareholders, the difficulties inherent in distinguishing in the corporate contract between profitable and unprofitable unlawful acts would either be insurmountable or quite costly to resolve. On the whole, the risks of corporate or managerial illegalities would be too great, and the potential rewards too tenuous, to expect anything other than a corporate contract that would prohibit such acts. As evidence that this stakeholder analysis reflects positive law, the paper points to state incorporation statutes and individual companies' articles of incorporation, which almost invariably charter corporations only for "lawful" purposes. The continuing (though limited) existence of the ultra vires doctrine has important implications. First, because unlawful acts are ultra vires, such activities become subject to the enforcement powers of corporate law, in addition to the enforcement powers of whatever governmental or private entity is charged with enforcing the underlying, substantive legal requirement. Corporate law thus provides shareholders the right to sue to enjoin corporations' continuing unlawful activities. Because the ultra vires doctrine is alive in a form that makes general law compliance an enforceable obligation within corporate law its continuing life also has implications for the duty of corporations and their managers to maximize profits. If corporations must obey the law, then such obedience must come at times when it is not profitable to do so. This notion is in contrast to the views of those scholars who have written that corporations should, with only some small exceptions, seek to maximize profits even when it requires the firm to break the law. Finally, that the obligation to obey the law is at the heart of the corporate contract means that corporate law cannot be thought of as concerned only with the internal governance of the firm. The remaining vestige of the ultra vires doctrine imports into corporate law a concern about general law compliance, and the "lawfulness" that matters is not merely the laws of the incorporating jurisdiction. In this view, a corporation is required under its charter to act lawfully wherever it does business, whether in Delaware, California, or in a foreign jurisdiction. State corporate law would thus have something to say about a shoe company's compliance with minimum wage laws in Vietnam or an oil company's use of slave labor in Burma.

Diversification as a Corporate Strategy for a Family-Controlled Business Group in a Frontier Market

Abstract: This study focuses on a family controlled firm "Beximco Group" in a frontier market economy, which during its thirty-five years of existence, has grown to become the leading business organization in Bangladesh. In this study, we look at the gains obtained via diversification in a setting that is completely different from the Western world. Bangladesh is a country that has been characterized as a "Frontier market" by the IFC, a subsidiary of the World Bank. Most of the ideas reflected in the literature are from studies done in the US. The broad ranges of institutional features that support business activities in the West are all absent in Bangladesh, and the findings in the literature may not be a practical application for emerging market economies and frontier markets, which are a step behind emerging markets. Devoid of all the institutional facilities and features that the West offers in the corporate world, we find that diversification leads towards growth and value creation in Bangladesh. Using accounting and market information from Audited Financial Statements from 1983-1995 and the IFC's EMDB data, we document that Beximco Group has made significant progress towards the path of growth and value creation. The findings support the hypothesis of growth through diversification. This result is consistent with that of Khanna and Palepu (1997) who observe similar findings for emerging market economies such as Chile and India. Baker (1992) notes that the role of diversification for the growth of Beatrice from a small creamery firm to one of the largest conglomerates in the US, is similar to what we see today for Beximco's growth. Diversification played a leading role for the rise in prominence for the group in Bangladesh. Key Words: Diversification, Bangladesh, Emerging Market Economies, Family-- controlled businesses. 1. Introduction Does diversification pay off? This question will be examined in the context of a frontier market economy within a founding-family controlled firm. International Finance Corporation (IFC), a subsidiary of World Bank, defines a "Frontier market" as a relatively small and illiquid market, even by emerging market standards, where information is generally less available than in other markets. The IFC also considers whether a market has adequate turnover and listings, and whether it has drawn at least a few foreign investors' interest. Another consideration is a market's development prospects, and in particular whether it is likely to eventually have the breadth (e.g., listings), depth (e.g., market cap and turnover), and infrastructure (e.g., regulatory structure, custody, clearance, and settlement). The Bangladesh market by the IFC's selection criteria qualifies for the "frontier market" status. In the United States there has been quite a few studies in this area. During the 1950's and 1960's, many corporations undertook massive diversification programs. This process reached its climax with the merger wave of the late 1960's and the accompanying rise to prominence of huge conglomerate firms. In the 1960's and 1970's, conglomerates were viewed as companies that can operate unrelated businesses more efficiently than a business that can be operated as a stand-alone unit, and were able to organize internal capital markets that were more efficient in allocating resources than external markets. In the last 15 years the trend has reversed, and recent studies by Comment and Jarrel (1994) and Liebeskind and Opler (1993) document return to specialization. The characteristics of the diversified business group can be summarized as follows: The business interests are diverse. The control system can take diverse forms depending on the conditions of each country. The controlling party-the conglomerate headquarters, the holding company and the head office-influences the allocation of capital into new ventures and existing firms. The control power resides exclusively inside the group whether it is perfectly owned, as in conglomerates, or partially owned, as in listed group member firms. …

Corporate groups in Australia

Abstract: This article presents the results of an empirical study of the group structures in Australia's Top 500 listed companies. It also examines some of the key legal issues relating to corporate groups. These include issues associated with the definition of corporate group in the Corporations Act and regulatory approaches to corporate groups in Australia.

The Nature of the Business Group: Power, Relational Contracts and Scope

Abstract: We propose a framework for understanding the business group, a hybrid organizational form that occupies the middle ground between firm and market and is a prominent feature of emerging economies. These organizations are characterized by varying levels of diversification and integration. We provide an explanation for the covariation, both positive and negative, in the scope, scale and strength of integration of business groups. This notion of integration embodies the degree of tightness in the ties that connect disparate subsidiary activities to the core of the business group, and is, we believe, novel to the theory of the firm. We also suggest the framework may be useful for understanding internal organizational hierarchy and multiproduct firms.

National economic maturity and product innovation: the case of Japan

Abstract: This paper addresses the question of whether the maturation of a national economy - in this case Japan's - necessarily leads corporations to place greater emphasis upon product innovation as a competitive strategy and to change their methods of innovation management. The RD the effectiveness of such spending in stimulating consumer purchasing, however, has been declining. With the exception of a small group of companies such as Sony, Canon, Fuji Photo Film etc., product innovation management methods at Japanese corporations are still underdeveloped. Based upon the findings of empirical studies, the conclusion of this paper is that Japanese corporations, which have long emphasised process innovation while thinking little of product innovation, are now paying for this failure by being unable to extricate themselves from the current ten-year economic recession.

The Problem of Corporate Groups, a Comment on Professor Ziegel

Abstract: Professor Ziegel's article provides a helpful guide to some of the issues that may arise in the insolvency of a corporate group that spans the United States and Canada.1 There is much to learn from the piece. Professor Ziegel provides an insightful analysis of two types of problems that arise when an enterprise that has substantial operations in both the United States and Canada seeks relief under each nation's respective bankruptcy laws.2 The legal organization can be arranged so that it will be many affiliated entities in each jurisdiction. Few, if any, enterprises that have substantial operations in two countries will have all of its assets housed in a single legal entity. This is true regardless of how tightly integrated the firm's operations are. In short, transnational firms are corporate groups. The first, and somewhat easier, set of problems that Professor Ziegel examines revolves around whether all members of the corporate group can file for bankruptcy in the appropriate national forum.3 If one assumes that the corporate group as a whole needs to be reorganized, Canada's somewhat more stringent requirement to file for reorganization raises the possibility that some members of the group could be left outside of the reorganization effort.4 The fear is that failure to administer all of the assets of the enterprise IMAGE FORMULA5 could impede, and perhaps doom, the reorganization effort. The second, and more difficult, set of issues that Professor Ziegel focuses on arise once at least part of the corporate group has come within the jurisdiction of both countries' bankruptcy courts.5 Inevitably, not all creditors will find themselves similarly situated. To be sure, there will be the commonplace difference between secured creditors and unsecured creditors. But corporate groups raise an additional problem. Even creditors whose claims have the same ostensible priority position may be facing the prospect of receiving radically different payouts.6 For example, creditors of one member of the corporate group may have claims that in total roughly equal that member's assets. Such creditors face the happy fate of being paid in full. Creditors of another related entity, however, may have claims that vastly exceed the assets of that member. These creditors see the possibility of a return of pennies on the dollar. The latter group of creditors understandably would prefer to see all claims and assets of the corporate group lumped together, whereas the former group of creditors would insist on maintaining the legal separation among the affiliated entities. The question, in a nutshell, is to what extent should the courts respect the divisions made by the parties? This problem arises even in the context of a wholly domestic firm.7 The problem only becomes compounded when competing legal systems struggle with the issue. These problems are nettlesome. Professor Ziegel does an admirable job in setting forth the issues that a court, guided only by the common law, will face. In this comment, I want to make two brief points to help put these issues into context. Both points stem IMAGE FORMULA7 from the fact that in modern financial practice, a firm's organizational structure, and by this I mean the number of distinct legal entities that comprise the corporate ground and the assets and obligations of each entity result from a conscious decision of the firm's managers. Moreover, sophisticated creditors are well aware of these decisions when they extend credit. The first point, which is noted in passing by Professor Ziegel, is that not all related entities of a group file for insolvency.8 Bankruptcy of an enterprise does not imply that all of the assets will come before the bankruptcy court. This ability of the firm's managers and creditors to ensure that some assets remain beyond the reach of any bankruptcy court suggests hesitancy on imposing substantive consolidation on unwilling parties. …

Shareholder and Creditor Protection in Company Groups under Polish Law

Abstract: This paper analyzes the emergence and practice of company groups as well as other legal institutions aimed at protecting creditors and minority shareholders of controlled companies in Polish law. To avoid misunderstandings, the concept of groups of companies is defined as an association of two or more companies dominated by a single entity (dominant firm). In principle, it is assumed that such groups of companies consist of companies possessing independent legal personality. However, participation of other legal entities in the group should also be considered. In particular, the classical narrow definition of a group of companies, if adopted by a given statute for the purpose of protecting creditors or minority shareholders, makes the task of circumventing the law rather easy. Thus, it should be sufficient if a group is dominated by a partnership or a cooperative organization. For similar reasons, a requirement that a “group” shall consist of at least three companies seems to be too formalistic and imperfect. Hence, the definition of a “group” or “dominance” may be given different meanings for various purposes. In this paper the notion of “dominance” is patterned after the seventh EU Directive, unless defined otherwise.

Debt as a device for corporate control: the case of countries in transition

Abstract: Role of debt in corporate governance systems of former Communist states, corporate governance problems facing transitional countries, role of banks, and accounting and legal requirements for debt to be used for corporate control.

Ensuring balance in corporate governance : parts 2F.1 and 2F.1A of the Corporations Law

Abstract: Effective corporate governance must balance the competing, and at times conflicting, objectives of efficient endeavour and accountability. The CLERP amendments to the Corporations Law introduced on 13 March 2000 go a long way towards providing this balance. While the business judgement rule was introduced to promote efficient endeavour, Pts 2F.1 and 2F.1A maintain corporate accountability. This article compares Pts 2F.t and 2F.1A of the Corporations Law. It is argued that, although there are procedural and substantive differences between the two parts that need to be understood by practitioners, the importance of the two Parts is that they work together to provide for a much-needed improvement and enhancement of shareholder rights and remedies, thus upholding accountability in corporate governance.

Japan’s Business Groups

Abstract: Business groups have been an important feature of Japan’s industrial organization since at least the beginning of the 20th century. As early as the 1870s there had already emerged the Yasuda banking complex, Mitsubishi shipping conglomerate and Mitsui trading company, all of which later became the cornerstones of the vast commercial empires known as the zaibatsu, precursors of the current-day financial keiretsu. Each zaibatsu consisted of disparate firms, including banks, trading companies and manufacturing concerns, much of whose stock reposed in a common holding company qua head-office, which was itself controlled by a wealthy family. In Japan’s First World War boom the zaibatsu expanded from their initial strongholds in mining, banking and the brokerage of foreign trade into new and diverse activities, including shipbuilding, iron and steel, and insurance. Nevertheless, in the 1920s and 1930s more than one half of the Japanese labour force continued to work in very small enterprises or were self-employed. Also, many of the large leading firms including cotton-spinning firms, remained outside the zaibatsu orbit and were diffusely held. The zaibatsu form of organization, in which a few families maintained concentrated ownership of diverse commercial holdings, was never the only viable way of financing and administering businesses in Japan.

Study on investment arrangement of business groups

Abstract: In this paper, supposed that only one member enterprise apply investment, static game model and dynamic game model are established respectively to analyze the investment arrangement in Business Groups; In the circumstance of dynamic game, two cases that holding company takes action first while member enterprises follow as well as member enterprises act first and holding company follows are studied, then the results are discussed, and suggestions on investment arrangement in business groups are put forward Supposed that more than one member enterprise apply for investment, the mechanism that can induce better investment decision is designed, and the effectiveness of the mechanism is proved

The Asian Conglomerates at a Crossroads

Abstract: This chapter addresses the impact of the 1997 Asian financial crisis on the domestic business conglomerates, by questioning their future in a rapidly changing environment. It enlarges the scope of the majority of academic work, based on the financial rationale, by considering the key role of these corporate groups in the crisis: South Korea is taken as a case study.

Dynamic Corporate Identity and Mechanisms of Organizational Learning within Japanese Manufacturing Second-Tier Keiretsu

Abstract: In this article we first scrutinize how dynamic organizational identity impacts on organizational learning among second-tier keiretsu members. We then proceed to analyze how organizational learning orientations and facilitating factors blend with the dynamic identity to impact on learning. We view organizational identity within the second-tier corporate group members as it auspiciously shifts between one characterized by high self-esteem on the one hand and low self-esteem on the other. It is our contention that this flexible and dynamic identity is always rationally in flux between high self-esteem and low self-esteem acting in concert with organizational learning orientation and facilitating factors. Based on this dynamism, it positively impacts on second-tier keiretsu member's incremental organizational learning. We then proceed to draw implications for the organizational learning theory.