part 4

[Audio] We present an alternative line of research that complements the formal analyses described in the previous section. This line of research exploits the great diversity of corporate governance rules across countries and firms attempting to uncover statistical relations between corporate governance practice and performance or to gain insights from a comparative institutional analysis. The practical reality of corporate governance is one of great diversity across countries and corporations. The literature has proposed several comparative perspectives on governance systems highlighting the multiple and interlocking tradeoffs and recognizing that different solutions may be needed depending on the type of activity to be financed. We review the main comparative perspectives on governance systems proposed in the literature highlighting the complexities and tradeoffs involved in corporate governance and recognizing the diversity across countries and corporations..

[Audio] We have identified a sub-field of research that focuses on the strengths and weaknesses of corporate governance systems in different nations. This section will review the main comparative perspectives on governance systems proposed in the literature including classifications suggested by Berglöf Franks and Mayer La Porta and others and others. These classifications have generally fit the oversimplification of two systems of corporate governance: the Anglo-American market-based system and the long-term large investor models of for example Germany and Japan. However all attempts at objectively classifying country corporate governance systems have been criticized for overemphasizing excluding or misinterpreting elements of each country's system. For instance the declining significance of the market for corporate control in the U S has generally been overlooked and the importance of stock markets in Japan has often been exaggerated. Therefore it is imperative to be aware of the limitations and biases in these comparative classifications and to utilize them as a starting point for further research and analysis..

[Audio] Explore the diversity of corporate governance rules across countries and firms attempts to uncover statistical relations between governance practice and performance. Review the main comparative perspectives on governance systems in the literature including debates surrounding large bankruptcies in corporate history and corporate governance scandals. Critics of U S governance in the 1980 seconds have argued that Germany and Japan had a lower cost of capital due to close relationships with banks and long-term debt and equity holders. Interestingly a revisionist perspective gained prominence in the early 1990 seconds according to which the low cost of capital in Japan was a sign of excesses leading to overinvestment. Following the stock market crash of 1990 Japan lost its relatively low cost of equity capital while the U S gradually gained a lower cost of equity capital as the unprecedented bull market gained steam. This lower cost of equity capital in the U S has been seen by many commentators as resulting from superior minority shareholder protections. Exchanges that adopted nasdaq-style I-P-O strategies and investor protections have been attributed to poor investor protections. The Asian crisis has been attributed to poor investor protections..

[Audio] This slide presents an alternative line of research that complements the formal analyses described in the previous section. This line of research explores the diversity of corporate governance rules across countries and firms with the aim of uncovering statistical relations between governance practice and performance or gaining insights through comparative institutional analysis. A sub-field of research has developed comparing the strengths and weaknesses of governance systems in different countries. Another aspect of Japanese corporate governance that has been praised in the 1980 seconds is the long-term nature of relationships between the multiple constituencies in the corporation which made greater involvement by employees and suppliers possible. This greater participation facilitated the introduction of 'just in time' or 'lean production' methods in Japanese manufacturing firms. The benefits of these long-term relations have been contrasted with the costs of potential 'breaches of trust' following hostile takeovers in the U S In conclusion this section has reviewed the main comparative perspectives on governance systems proposed in the literature..

[Audio] We explore the great diversity of corporate governance rules across countries and firms. We attempt to uncover statistical relations between corporate governance practice and performance or to gain insights from a comparative institutional analysis. We review the main comparative perspectives on governance systems proposed in the literature..

[Audio] We will focus on the main perspectives on governance systems proposed in literature. The presentation will start with the bid-defence game and the lack of pre-defence systems in the UK which makes it the only O-E-C-D country with an active and open market for corporate control. Next we will review the classification of corporate governance systems by La Porta and others (1997 98) and demonstrate a strong correlation between investor protection indices and legal systems based on legal origin. Regulatory constraints in the U-S that limit intervention by large shareholders and arguments against the race to pass anti-takeover laws as a race to the top will also be discussed. We will explore the case of the UK where institutional investors have larger holdings and regulation allows them to jointly force companies to dismantle their pre-defence systems. Finally we will summarize the limitations of the La Porta and others (1997 98) indices and other criticisms of the direct correlation between legal origin and other variables. The views of Allen and Michaely (2002) and La Porta and others (2000b) will be discussed..

[Audio] Corporate governance is a field of research that seeks to understand the relationship between governance practices and company performance. This section presents an alternative line of research that focuses on the diversity of corporate governance rules across countries and firms. By examining statistical relations and comparative institutional analysis researchers hope to uncover insights that can improve corporate governance practices. The literature suggests a range of perspectives on corporate governance systems including the role of shareholders the reversal of causality and the idea of a single standard resembling the current law in Delaware or securities regulation standards as set by the U-S SEC. While some commentators argue for the Anglo-American model as the standard shareholder-oriented model others have attempted to reconcile the contradictions between different models. In Europe The Netherlands emphasizes ultimate control by shareholders strong protection for non-controlling shareholders and the market value of their shares in their firm as the principle measure of shareholder interests. This model is contrasted with other governance systems such as the manager-oriented labor-oriented state-oriented and stakeholder models. Overall the literature suggests that there is no one-size-fits-all solution to corporate governance and that the best approach is to compare and contrast different governance systems in order to gain a better understanding of their strengths and weaknesses..

[Audio] Our focus is on the diversity of corporate governance rules across countries and firms. By comparing the strengths and weaknesses of corporate governance rules in different countries we aim to uncover statistical relations between corporate governance practice and performance or gain insights from a comparative institutional analysis. We review the main comparative perspectives on governance systems proposed in the literature. Some argue that the market for corporate control in the U S is more active than elsewhere suggesting that U S anti-takeover rules are less effective than anti-takeover measures elsewhere. Others argue that the global corporate governance reform movement is not necessarily by imitating the U S model but rather by developing its own unique approaches. There is growing dissatisfaction with U S corporate governance and there is little doubt that the Enron collapse was caused by corporate governance problems. However the global corporate governance reform movement is pressing ahead and not necessarily by imitating the U S model. The most visible manifestations are corporate governance codes that have been adopted in most markets except the U S Indications suggest that as a result of the Enron collapse the U S too will join in this global development originating from other shores..

[Audio] We will examine various policy documents. These codes provide recommendations on issues such as executive compensation the role of auditors the role of non-shareholder constituencies and their relation with the company..

[Audio] This section provides a review of the main comparative perspectives on governance systems proposed in the literature. Recent studies have focused on the strengths and weaknesses of corporate governance rules in different countries. However the codes have a dominant focus on boards and board-related issues such as board membership criteria separation of the role of chairman of the board and C-E-O board size frequency of board meetings and the proportion of inside versus outside directors. Independent directors appear to add little in event studies and regressions and institutional investors place great importance on the separation of the roles of chairman of the board and C-E-O while the empirical evidence suggests that this separation hardly matters. To address these limitations some commentators attempt to go beyond a simple comparison of one system to another. For instance Black (1990) criticizes U-S corporate governance rules for excessively raising the costs of large shareholder intervention but also criticizes other countries' corporate governance standards as falling short of what he would like U-S governance to be. Similarly Gregory (2002) compares 33 codes from 13 member states of the European Union and two pan-European codes to the O-E-C-D Principles and finds that all the international and 28 national codes provide a board job description and all the codes cover at least one board-related issue. However only about 15 national codes cover anti-takeover devices. A similar picture emerges from comparisons of codes from outside the EU (Gregory 2000 a b). The comparative perspective on corporate governance can be a useful tool for understanding the strengths and weaknesses of different systems and identifying areas for improvement..

[Audio] We present an alternative line of research exploring corporate governance rules across countries and firms attempting to uncover statistical relations between corporate governance practice and performance or to gain insights from comparative institutional analysis. We review main perspectives on governance systems in the literature and examine five different approaches to resolving collective action problems among dispersed shareholders: hostile takeovers large investors boards of directors CEO incentive schemes and fiduciary duties & shareholder suits. Our alternative line of research aims to provide insights into the strengths and weaknesses of corporate governance rules in different countries and to uncover statistical relations between corporate governance practice and performance. We rely on recent surveys and stylized facts on takeovers and mergers in the U S from 1973-98. Gugler (2001) surveys the English-language literature and draws on national experts to survey the local language literatures in Austria Belgium Germany France Italy Japan The Netherlands Spain and Turkey..

[Audio] Our research aims to investigate the diversity of corporate governance practices across countries and firms by exploring the role of large investors fiduciary duties shareholder suits and the impact of takeovers. We will focus on hostile takeovers a powerful governance mechanism that allows bypassing management to gain permanent control of a company by concentrating voting and cash-flow rights. Corporate governance codes endorse hostile takeovers and investor groups' voting guidelines are strongly against anti-takeover devices and for mandatory disclosure of price-sensitive information and toeholds. However disclosure and insider trading laws may make hostile takeovers harder as noted by Grossman and Hart (1983). Our research will identify the factors that influence hostile takeovers and their impact on corporate governance..

[Audio] Our aim is to uncover statistical relations between corporate governance practices and performance or gain insights through a comparative institutional analysis. We will discuss the strengths and weaknesses of corporate governance rules in different countries and explore the empirical evidence and practice in the field..

[Audio] In this section We review the main comparative perspectives on governance systems proposed in the literature. We discuss the evidence on takeover activity in the U S and the UK which suggests that targets of successful hostile bids had poorer pre-bid performance than other targets. However empirical evidence shows that poor target management contributes little or is not significant in the U S and the UK. Hostile takeover activity in the U S sharply declined after 1989 due to anti-takeover laws and insider trading regulations making it virtually impossible to take over U S corporations without target board consent. Takeover activity has recently emerged in continental Europe where there were none before and it is possible that this change has brought about more managerial discipline. We also discuss the evidence on anti-takeover devices which suggests that bids in the U S are classified as hostile when the target boards have a lot of bargaining power. The boards of larger companies are more likely to reject a bid at least initially to obtain a higher premium. Schwert (2000) covers the period 1975-1996 and considers four definitions of hostile bid. He concludes that the variables that probably reflect the bargaining power of the target firm such as firm size and the secular dummy variables contribute most explanatory power. Franks and Mayer (1996) cover the period 1980-1986 and consider the pre-bid evolution of share prices dividend payouts cash-flows and Tobin's Q They find a 14-point difference in abnormal returns between successful hostile bids and accepted bids that is not statistically significant a significant difference in Tobin's Q but no difference in dividend payouts or cash-flows. On Tobin's Q they observe that all values are larger than one suggesting poor relative rather than absolute performance. Finally companies with control changes have higher pre-bid stock returns than companies without control changes the opposite of what the poor management hypothesis predicts..

[Audio] Our research focuses on analyzing the strengths and weaknesses of corporate governance systems across countries and firms. We explore the diversity of corporate governance practices and attempt to uncover statistical relations between governance practice and performance. We examine the empirical evidence and practice related to the correction of inefficiencies specifically taking into account the phenomenon of takeover premiums which are the average premiums paid to target shareholders in all U S acquisitions. We find that these premiums are substantial with an average premium of 24% going to target shareholders in all U S acquisitions (Andrade and others 2001) and higher premiums for hostile takeovers (Schwert 2000 Franks and Mayer 1996). Although the event study evidence cannot conclusively determine whether these premiums arose from the correction of an inefficiency or whether they simply constituted transfers away from bidding shareholders or other constituencies the evidence suggests that takeover premiums may be related to the correction of market inefficiencies caused by short-term myopia or undervalued targets. This explanation is subject to debate as some influential surveys of the evidence of the 1980 seconds rejected these explanations on the grounds that there is evidence that stock markets are efficient and that the stock price of targets that defeat a hostile bid often returns to close to the pre-bid level (Jensen and Ruback 1983; Jarrell Brickley and Netter 1988). Our research aims to provide insights into the role of corporate governance in improving market efficiency and promoting sustainable business practices. By analyzing the strengths and weaknesses of different governance systems across countries and firms we hope to contribute to the development of more effective and equitable corporate governance policies that benefit both shareholders and stakeholders alike..

[Audio] Our research focuses on redistribution and takeover defenses in governance systems discussed in literature. We explore comprehensive comparative perspectives on governance systems with a focus on redistribution and takeover defenses. Redistribution can be challenging to separate from overall efficiency gains but studies have attempted to quantify the amount of redistribution resulting from takeovers. However no pattern has emerged. The source of gain for target shareholders when overall gains are small or non-existent has not been identified with precision. Takeover defenses can reduce the average number of bids and help the board extract higher premia from bidders. A comprehensive literature has tried to estimate the size of these effects in the U S before focusing on the availability mechanics and incidence of different defense mechanisms..

[Audio] This research aims to explore the relationship between governance practices and performance. Using comparative institutional analysis we will uncover insights across different countries and companies. We begin by examining the main perspectives on governance systems found in literature. Corporate governance rules play a crucial role in shaping firm behavior and stakeholder interests. To protect their interests target companies employ various pre and post-bid defense mechanisms. Pre-bid defense mechanisms can be introduced without shareholder approval such as capital structure classified boards supermajority requirements cross-shareholdings enhanced voting rights voting right restrictions subjection of share transfers to board approval and change of control clauses in major contracts. Some important defenses can be introduced without shareholder approval such as control clauses and cross-shareholdings in Europe poison pills in the U S and block acquisitions larger than 10% in Korea. The incidence of anti-takeover provisions is well documented in the U S but less systematically in Europe and Asia. Firms protected by poison pills have relatively high institutional ownership fewer blockholders and low managerial ownership consistent with the view that institutional ownership presents a threat in a hostile takeover situation and blockholders can prevent the adoption of poison pills. The evidence on the consequences of takeover defense adoption is mixed with some studies showing that C-E-Os are more likely to be replaced when hostile takeover activity is high consistent with disciplining and entrenchment while others find small negative abnormal returns. In conclusion this line of research aims to shed light on the complex relationship between corporate governance rules and performance as well as the role that pre-bid and post-bid defense mechanisms play in shaping this relationship. By analyzing the diversity of governance systems across countries and companies we hope to gain insights that can inform policy and practice in the field of corporate governance..

[Audio] Our research aims to investigate the diversity of corporate governance rules in various countries and corporations. Our study seeks to identify the statistical correlations between governance practices and performance or to gain insights from comparative institutional analysis. We begin by examining the enhanced bargaining effect which suggests that independent boards of target firms can receive higher premiums than captive boards even when controlling for the presence of anti-takeover devices. However this assumption contradicts evidence from Comment and Schwert (1995) who found that anti-takeover measures have increased bid premiums suggesting that the enhanced bargaining effect dominates. Furthermore empirical evidence indicates that anti-takeover provisions in the United States have had a detrimental effect on firm value. The latest panel data evidence suggests that anti-takeover provisions in the United States have had a negative impact on firm value (Gompers Ishii and Metrick 2001). The study demonstrates that from 1990 to 1998 investors who would have taken long positions in companies with “strong shareholder protections” and short positions in companies with “weak shareholder protections” would have earned abnormal returns of 8.5% per year. However the authors caution that it is challenging to interpret this finding as measuring the market value of “good governance”..

[Audio] The research offers an alternative approach to understanding the relationship between corporate governance practices and performance. It utilizes a comparative institutional analysis to gain insights from various governance systems proposed in the literature. Dual class shares which grant different voting rights to shareholders are a common deviation from the one-share-one-vote practice. These shares can impact corporate governance systems and lead to conflicts of interest. The theory predicts that the value of dual class premia varies with factors such as the relative size of dual class issues the inequality of voting power the value of assets under control the probability of a takeover and the likelihood of a small shareholder being pivotal. Empirical estimates range from 5.4% to 82% suggesting that the value of corporate control is large in Italy and relatively small in Korea Sweden and the U S However these estimates may not accurately control for all factors affecting the price differential making them an unreliable measure of the value of corporate control. Comparative analysis of corporate governance systems can provide valuable insights into how to improve governance practices in different countries..