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26 May 2015  

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See the latest research from the ECGI published in the ECGI Finance Working Paper series
Thu, 23 Apr 2015 10:23 GMT  
ECGI Finance Working Paper 449/2015

Eugene Kandel, Hebrew University of Jerusalem, CEPR and ECGI Konstantin Kosenko, Bank of Israel Randall Morck, University of Alberta, NBER and Bank of Canada and ECGI Yishay Yafeh, Hebrew University of Jerusalem, CEPR and ECGI

Submitted by
Yishay Yafeh
Corporate Groups; Corporate Ownership; US Financial History; New Deal

Most listed firms are freestanding in the U.S, while listed firms in other countries often belong to business groups: lasting structures in which listed firms control other listed firms. Hand-collected historical data illuminate how the present ownership structure of the United States arose: (1) Until the mid-20th century, US corporate ownership was unexceptional: large pyramidal groups dominated many industries; (2) About half of these resembled groups elsewhere today in being industrially diversified and family controlled; but the others were tightly focused and had widely held apex firms; (3) US business groups disappeared gradually, primarily in the 1940s, and by 1950 were largely gone; Their demise took place against growing concerns that they posed a threat to competition and even to society; (4) The data link the disappearance of business groups to reforms that targeted them explicitly – the Public Utility Holding Company Act (1935) and rising inter-corporate dividend taxation (after 1935), or indirectly – enhanced investor protection (after 1934), the Investment Company Act (1940) and escalating estate taxes. Banking reforms and rejuvenated antitrust enforcement may have indirectly contributed too. These reforms, sustained in a lasting anti-big business climate, promoted the dissolution of existing groups and discouraged the formation of new ones. Thus, a multi-pronged reform agenda, sustained by a supportive political climate, created an economy of freestanding firms.

to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp
See the latest research from the ECGI published in the ECGI Law Working Paper series
Thu, 23 Apr 2015 10:35 GMT  
ECGI Law Working Paper 289/2015

Guido Ferrarini, University of Genoa and ECGI

Submitted by
Guido Ferrarini
Executive Remuneration, Corporate Governance, Banks, Financial Crisis, Prudential Regulation, Supervision, CRD IV

In this paper, I analyse the rise of mandatory structure of bankers’ pay in Europe as outcome of criticism of pre-crisis remuneration practices at financial institutions. Whether flawed bankers’ pay contributed to the financial crisis is still debated amongst scholars. It appears more likely that insufficient prudential regulation and flawed risk management contributed to banks’ undertaking risks that were later proven to be excessive from a societal perspective. All this would have suggested improving risk management systems and reforming areas of prudential regulation such as capital adequacy and organizational requirements, rather than intervening directly on bankers’ incentives. Nonetheless, governments and legislators, under the pressure of the media and public opinion, proceeded to extensive reforms of bankers’ remuneration, with reference to both the top executives and other risk-taking/high-earning employees at various levels of the institutions concerned. Indeed, the FSB principles and standards cover not only remuneration governance and disclosure, but also remuneration structures. Both the fixed and the variable remuneration components and the relationship between the same are subject to detailed regulation. As a result, the international standards have nature of “rules” and have been implemented as such. The EU in particular has followed a strict approach to the implementation of the FSB standards and has also departed from the latter by introducing an unprecedented cap on variable remuneration in CRD IV. I analyse this cap from a legal and economic perspective, showing that its rationale is flawed and that unintended consequences may derive from it as a result. Moreover, the cap is inconsistent with other aspects of CRD IV which incorporate the international standards on variable pay.

to view details and download this Working Paper from the SSRN website

All ECGI Working Papers in the Law and Finance series are available on the ECGI website at www.ecgi.org/wp