PROF. MARC GOERGEN ON CORPORATE GOVERNANCE

Please click on the following diagrams to see them in their full size. The full study was published in the Journal of Corporate Finance  and can be found here . A pre-publication version of the same study is available from the SSRN website . See also my blog on the Cadbury Code which refers to above study. Chapter 14 of International Corporate Governance  reviews corporate governance issues pertaining to initial public offerings. Legal disclaimer: This blog reflects my personal opinion and not necessarily that of my employer. Any links to external websites are provided for information only and I am neither responsible nor do I endorse any of the information provided by these websites.  

There is a well established literature in economics (see e.g. the study by  Stephen Knack and Philip Keefer ) which shows that country level trust increases economic performance, as measured by GDP growth. These studies measure country trust by the percentage of respondents from the World Values Survey  who agree that "most people can be trusted"; the alternative being that one "need[s] to be very careful when dealing with people".  When it comes to what drives country trust, the literature is somewhat less consistent. Broadly speaking however, country trust is negatively affected by income inequality, ethno-linguistic diversity and the importance of hierarchical religions. Contradicting the "trickle-down" wealth effect, this literature finds that income inequality is bad for economic wealth, via the decrease in country trust which in turn hurts economic growth. Ethno-linguistic diversity is normally measured by the probability that two randomly selec...

Sometimes following so called  best practice  in corporate governance is just not good enough. Or what is currently best practice at the national level could not even be deemed to be good. This might be the case for firms based in emerging markets where corporate governance regulation is weak and the regulation that exists is not necessarily enforced. However, even some firms from developed economies, with relatively stringent regulation and good law enforcement, may feel that their national corporate governance standards are not good enough.  In 2007, while holding a chair in finance at Sheffield University, I organised a conference on contractual corporate governance  with the help of  Prof. Luc Renneboog  from Tilburg University. We defined contractual corporate governance as The ways and means by which individual companies can deviate from their national corporate governance standards by increasing (or reducing) the level of protection they offe...

In February, I wrote a blog about the UK approach to corporate governance , which started with the Cadbury code. I argued that we need to review the UK approach as it is not enough evidence based. A few years ago, I organised a conference on corporate governance at Cardiff Business School . One of the participants, one of the authors of an important review of UK corporate governance which was commissioned by the UK government, expressed utter surprise at the fact that there was indeed research being conducted on corporate governance. It seems weird that policy makers and executives have so little awareness and knowledge of corporate governance research, which by its very nature is highly practice oriented and often also has important policy implications. Why would this be the case? Imagine that your general practitioner (GP) refuses to keep up with recent developments in medical research. What would be your reaction? You would very likely lose confidence in your GP and try to find a...

Improving diversity on corporate boards is definitely on the agenda, and increasingly so. Typically, diversity is limited to gender diversity. Unfortunately, we still seem to be light years away from a broader approach to diversity, including diversity in terms of age, race, culture, religion and other personal attributes. So is increased board diversity good or bad? There are many commentators on social media who unequivocally advocate greater diversity and equate increases in diversity to shareholder value creation. Here is just one recent example from Twitter: Yes, #diverseboards create value MT“ @TheWomanEffect : Gender #diverseboards – a financially significant issue? http://t.co/2dC87UW8 ” #corpgov — Tommaso Arenare (@tommaso_arenare) March 9, 2012 The author of this Tweet is obviously convinced that greater diversity is always good and that there is no doubt whatsoever about this. So what does the academic literature tell us? First of all, and this comes as no...

It is now more than 20 years since the Cadbury Committee's Code of Best Practice , commonly known as the Cadbury Code , has been published. While at first its focus was on financial fraud as a reaction to corporate scandals such as Coloroll and Poly Peck, its remit was extended after the Robert Maxwell and BCCI scandals. A common feature of most of these scandals was a domineering chief executive officer (CEO) combined with a weak board of directors. This kind of problem is commonly referred to in the academic literature as the principal-agent problem . This problem arises in widely held firms that are owned by many small shareholders who tend to be passive and who tend not to get involved in the running of the firms they have invested in. This problem is effectively caused by conflicts of interests between the managers (the agents) and the shareholders (the principals). While the managers are expected to run the firm in the interest o...

Ed Miliband thinks that all private equity investors are bad, "stripping assets for a quick buck ... [and that] they aren't the values of British business" . So is he right or wrong? Similar to most other politicians, Ed Miliband is right and wrong. In what follows, I shall focus on the effects of private equity acquisitions on employees as there is an existing body of academic research studying that particular link. This research suggests that, on the whole, private equity acquisitions are good for employees, resulting in increases in employee numbers as well as improvements in employment practices and employee voice. However, most of this research does not distinguish between the different types of private equity investors. Nevertheless, I first want to define what I mean by private equity . Private equity involves the acquisition of a public firm or at least the facilitation of that acquisition. The firm is taken private in a so called public-to-private (PTP...