Corporate governance is a topic which is becoming more and more discussed in international business academia; there is still intense debate amongst leading theorists about the key issues concerning ownership structuring differences . Corporate governance and ownership structures are two separate concepts, but they are closely linked, and must be defined from the start.
Corporate governance is the broad set of methods by which firms are controlled, for example, legal protection of shareholders and requirements relating to the board or stakeholders . Ownership structure is one dimension across which theorists have looked to group different countries in order to analyse the similarities in corporate governance across these territories. One particular model which forms a link between ownership structure and corporate governance is the Varieties of Capital model (VoC). Throughout the discussion, two main economies will be used to demonstrate the concepts discussed. These will follow the Varieties of Capitalism model, one being the UK, a Liberal Market Economy (LME), and the other being Germany, a Coordinated Market economy (CME).
In the VoC model, LMEs are economies with a high level of stock market capitalisation, which is to say, diffused ownership structure. On the other hand, the CME form of capitalism is aligned with concentrated ownership structure .
This paper will attempt to give balanced perspectives on the reasons for the different types of ownership structures. In addition, it will discuss the implications of these different ownership structures in terms of their advantages and disadvantages. But perhaps most importantly, this analysis will lead to the discussion of whether these two models will lead to divergence or convergence of capitalist economic organisation.
[...] For example, the advantage of capital and labour flexibility in the UK and other diffused ownership economies gives it an advantage in industries which require radical innovation[33], such as high tech industries, or the pharmaceutical industry. On the other hand, the long-term view and training systems in place in concentrated ownership economies means that countries like Germany have a comparative advantage in industries requiring incremental innovation[34] and long term investment for example, the automobile industry. Convergence of corporate governance systems Considering all the strengths and weaknesses discussed in section it is no surprise that theorists have explored the concept of a new system combining the strengths of each type of capitalism. [...]
[...] There are three broad causes for the differences in ownership structure. These are legal, political, and economic reasons and they will all be discussed. An aspect to start from is the German legal system. Investor protection the concept of regulation and laws related to the ownership of shares, in order to protect the interests of the shareholder.[5] It is logical that the better the protection for shareholders, the more willing they will be to invest. A concept that is closely linked with investor protection is the risk of expropriation, which is the abuse of power by managers or controlling shareholders to use the firm's resources or profits to benefit themselves.[6] Considering that Germany has a German civil law legal family which provides less investor protection[7] than the UK's common law system, La Porta et al's comment that “countries with poor investor protection typically exhibit more concentrated control of firms than do countries with good investor protection”[8] certainly gives a convincing reason for Germany's concentrated ownership structure. [...]
[...] To explain the lack of hostile threats, because the average German firm has a higher ownership concentration, a hostile takeover situation is less likely: after all, if somebody does not want to sell their majority share in a company, there is no way that the company can be taken over in a hostile bid, as Rossi and Volpin state: “Hostile takeovers require that control be contestable, a feature that is less common in countries with poorer investor protection”[23] 4. Diffused ownership structure: e.g. [...]
[...] p8 La Porta, R. et al. (2000). p14 Roe (2003). p71 Ibid Goyer, M. (2008) BSCE 2nd Lecture slides Cheffins, B. (2001). p483 La Porta, R. et al. (2000). Roe, M. (2003). p102 Mayer, C. (1998). p161 Hall, P.A., Soskice, D. (2001). p22 Hall, [...]
[...] Cheffins[12] actually uses the UK as an example to discredit the matters” thesis, under the logic that the matters” thesis proposes that share ownership can be dispersed in a country only if its legal system provides investors with sufficient protection against the risk of expropriation, which is explained in section Yet despite the UK having more and more Berle-Means corporations, where ownership and control are separated, thus giving more protection to minority shareholders, Cheffins claims that the paradigm has shifted, and that law no longer contributes towards the existence of a dispersed ownership structure. [...]
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