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The Global History of Corporate Governance An Introduction

The Global History of Corporate Governance An Introduction. Randall K. Morck and Lloyd Steier Zhu Guangyao. Structure. To Whom Dare W e E ntrust C orporate G overnance ?. A general overview of Capitalism a variegated collection of economic system.

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The Global History of Corporate Governance An Introduction

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  1. The Global History of Corporate Governance An Introduction Randall K. Morck and Lloyd Steier Zhu Guangyao

  2. Structure

  3. To Whom Dare We Entrust Corporate Governance? • A general overview of Capitalism a variegated collection of economic system

  4. To Whom Dare We Entrust Corporate Governance? • Purposes of this volume: Two Questions

  5. To Whom Dare We Entrust Corporate Governance? • Two features of corporate governance • corporate governance is entrusted to very different sorts of people and constrained by very different institutions

  6. To Whom Dare We Entrust Corporate Governance? • La Porta et al.(1999): Mexico: British: Argentina: America: Israel, Hong Kong, Sweden: • Claessens, Djankov, and Lang(2000), Khanna and Rivkin(2001)

  7. To Whom Dare We Entrust Corporate Governance? • Two features of corporate governance 2. the pyramidal business group magnifies the economic importance of this difference enough to create genuinely different economic systems structures that permit tiny elites to control the greater parts of the corporate sectors ……

  8. Does It Matter? conclusion

  9. Shareholder Capitalism • Capital is allocated to firms that can use it well and is kept away from firms that are likely to waste it • Practiced in the United Kingdom and United States • Entrusted to CEOs and other professional managers • Cost: monitoring cost. How to solve: disclosure, management pay, prohibitions • Problems: good managers are penalized and poor ones rewarded if investors get things wrong, and this seems to happen with some regularity. • Does It Matter?

  10. Family Capitalism • investors are deeply mistrustful of most companies and prefer to invest to persons of good reputation • The most common system (Japan, Korea etc.) • Entrusted to wealthiest few families • provide investors with fewer legal rights • Problems: governance can deteriorate if the families grows inept, conservative. So they tend to keep the status, keep shareholder rights weak so that the upstarts cannot compete for public investors’ saving. • Does It Matter?

  11. Investors put money in a bank, the bank then lends the money to companies to buy factories, machinery, and technologies. • Germany, Japan, Korea • Entrusted to bankers, bankers intervene the governance of firms • Problems: if a few key banks are themselves misgoverned, the ramifications are much worse and can create problems across all the firms that depend on that bank for capital. • Does It Matter? • Bank Capitalism

  12. Paying taxes and letting the state provide capital to businesses • China • Entrusted to public officials • Problems: intractable governance problems arise if the public officials have inadequate ability or knowledge to make such decisions or if they skew decisions to benefit politically favored persons or groups. • Does It Matter? • State Capitalism

  13. only option left if people mistrust all above • Problems: company must grow using its earnings alone, which is economically inefficient, difficult for impecunious entrepreneurs • Does It Matter? • Hoarding gold and silver coins

  14. Does It Matter? conclusion

  15. Look Back: Four Capitalism

  16. Two Emerging Points raised by Prof. Shen • Hong Kong Family capital ratio is decreasing Trust Funds and IPOs are increasing • Tendency State Capitalism (China)

  17. Further Reading • State capitalism in China Of emperors and kings -China’s state-owned enterprises are on the march <The Economist >, Nov 12th 2011 http://www.economist.com/node/21538159# Criticized the state capitalism, especially aimed at China

  18. Further Reading State capitalism in China, the economist, Nov. 12th 2011 Main Points: • The Chinese government has quietly obstructed market forces • The great power of State-owned Assets Supervision and Administration Commission (SASAC) • Genuinely independent firms are starved of formal credit, so they rely on China’s shadow banking system • Studies show state-owned firms maybe inefficient and not well-managed • Main Reason: state firms must pursue state’s aims • However, SASAC still deserves some praise(running management-training courses, establishing codes of conduct…)

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