Corporate Governance and Economic Performance

Summary

This project took place under the auspices of the European Corporate Governance Network (ECGN) during 1998 and resulted in the recent publication by OUP of Corporate Governance and Economic Performance, edited by Klaus Gugler, Assistant Professor of Economics, University of Vienna.

In the field of corporate governance, comparative empirical research is necessary, since there are so many different systems in place all over the world. To overcome the lack of hard data which is a major impediment to such research, the ECGN brought together from different countries teams that were familiar with their respective language and corporate culture. Previous work by these teams consisted of efforts to collect comparable data on the ownership and control structure of listed corporations in Europe, i.e. data on equity and voting rights. For further details on this project, see The Control of Corporate Europe on this website.

What ultimately matters for companies, policy makers and society alike is whether corporate governance affects economic performance, and if so, how. This project took this issue a step further by analysing the link between corporate governance and economic performance. It examined evidence of this link, from both English and respective local language studies, as well as covering Austria, Belgium, Germany, France, Italy, Japan, The Netherlands, Spain, Turkey, the United Kingdom and the United States. The broad picture that emerged was one of marked variation of systems even within Continental Europe, underlining the importance of cross country comparisons.

One of the main conclusions of the research was the assertion by many, predominantly Continental European, studies that there is a level of ownership concentration beyond which owner-managers get entrenched and extract rents from other, smaller shareholders. Expropriation of minority shareholders appears to be consistently worse in countries with weaker shareholder protection and illiquid securities markets such as in Italy, Spain, Turkey, Germany, or Austria. In systems where shareholder rights are well protected such as in the UK or USA, positive effects of large shareholder monitoring are documented.

A step in the right direction concerning corporate governance and capital market reform in Europe would be increased minority shareholder rights and better standards concerning company disclosure requirements. The task of prudential company legislation is to secure the benefits of large shareholders as effective monitors of management and, at the same time, to prevent them from consuming excessive private benefits from control.

Organisation

See the country teams involved in this coordinated research programme

Project Output

The book Corporate Governance and Economic Performance, edited by Klaus Gugler, Assistant Professor of Economics, University of Vienna published by OUP (2001). See the Books page on this website to order.

Sponsors

This project was sponsored by:

• Fondazione Eni Enrico Mattei (FEEM), a non-profit foundation endowed by ENI (the Italian oil and gas company)
• The European Commission's Directorate for Industry (DGIII)
• The Politecnico di Milano
• The OECD

Further information is available from Klaus Gugler.