Dec 23, 2012

Corporate-Governance Observer (Developing Countries): Part 1

More attention is paid to State governance and less so to corporate governance in developing countries. This is a tough topic to study, even tougher than State governance, it is difficult to find reliable data, or any data at all! Most of the firms in developing countries are family owned, and their information is private.

The effects of weak corporate governance are harmful. It can lead to low trust, which is determinant for economic development and growthto more expensive funding, and to mismanagement and closure of firms, among others negative consequences. 

From Wikipedia:
Much of the contemporary interest in corporate governance is concerned with mitigation of the conflicts of interests between stakeholders. Ways of mitigating or preventing these conflicts of interests include the processes, customs, policies, laws, and institutions which have an impact on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business.
These are two recent papers on corporate governance:

1) More competition improves corporate governance in developing countries. The authors use the Herfindahl-Hirschman Index as a measure of competition. The paper is interesting, I am concerned about the small sample of countries and firms. But I think the findings are in the right direction. They say:
Firms with the highest ratings are from Finland (75.69), Ireland (75.25), and the United Kingdom (71.22) while firms with the lowest ratings are from Colombia (19.15), Taiwan (21.63), and Peru (23.26) [they exclude US firms]. 

2) Corporate governance and national institutions: A review and emerging research agenda. The authors (Filatotchev, Jackson, & Nakajima, Asia Pacific Journal of Management, March 2012) write on the importance of an institutional approach. They say in the conclusions:
Previous studies that combine strategic management and institutional research indicate that corporate governance often has to compensate or cope with the situation of “institutional voids” in emerging economies. For example, in their analysis of India and Chile, Khanna and Palepu (1997, 2000) argued that business group networks serve as a response to institutional “voids” resulting from government corruption and poor enforcement of business laws. Family-owned business groups often have dubious governance structures associated with poor information disclosure and insiders’ abuse of private information even in relatively developed emerging stock-markets such as Hong Kong (Filatotchev et al., 2011). But institutional change may also be accompanied by a re-configuration of governance practices. Looking at BRIC economies, Estrin and Prevezer (2011) argued that in China and some states of India, “substitutive” informal institutions substitute for and replace ineffective formal institutions, and they are critical in creating corporate governance leading to enhanced domestic and foreign investment. In contrast, Russia is characterized by “competing” informal institutions whereby various informal mechanisms of corporate governance associated with corruption and clientelism undermine the functioning of reasonably well set-out formal institutions relating to shareholder rights and relations with investors.
This paper, which reviews 10 years of literature, suggests that the method of case studies can work well for studying corporate governance in developing countries. 

Top 10 scholars on corporate governance:

According to this paper (Judge, Weber, & Muller-Kahle, Academy of Management Learning & Education, 2012) the top 10 scholars in corporate governance are:
  1. Michael Jensen 
  2. Andrei Shleifer 
  3. William Meckling 
  4. Rafael La Porta 
  5. Florencio Lopez De Silanes 
  6. Lucian Arye Bebchuk 
  7. John Coffee
  8. James Westphal 
  9. Bernard Black
  10. Luigi Zingales
That article is not about corporate governance per se, but about publishing strategies and the important of networks in co-authoring. It is fascinating! 

Part 2 on corporate governance in developing countries will come soon in this blog. 

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