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Showing posts from March, 2020

Corporate Control Across The World

CEO Political Ideology, Shareholder Primacy and Dividend Policy

What is the purpose of a corporation? While common law, which prevails in Anglo-Saxon countries, prescribes that the purpose of a firm is to maximize shareholder value, other legal systems tend to accord at least some importance to stakeholders other than the shareholders. For example, the German corporate law system explicitly refers to employee interests while making employee representation on boards of directors mandatory subject to firm size. While such countrywide explanations are useful in answering the question about what the purpose of a corporation should be, they are not helpful for furthering our understanding of the reasons behind the observed heterogeneity in the behaviour of firms from the same legal regime. For example, why do some firms from the same legal regime follow a more shareholder-centric approach while others prioritize the welfare of their employees over their shareholder? Importantly, how do these differences in approach affect firm policy? Read more here.