Geoffrey Wood and Douglas Michael Wright
The financial crisis of 2008 has prompted some people to ask basic questions about the extent to which large-scale corporate governance failures have underestimated the basis of the global economy. This chapter carefully critiques the financialization perspective on corporate governance, and argues that the financialization process does not comprise a new epoch and is not a coherent phenomenon. It suggests that socio-economic change is a process of continual change that embodies continuities going back to previous eras. It states that institutions are highly unlikely to be perfectly aligned with and follow what is done at firm level, which may be the reason behind the various strengths and weaknesses encountered in Chandlerian managerial capitalism. The literature on financialization is also examined.
This article considers the analysis of the firm's strategic environment. Its objectives are to examine the concept of the environment in the context of strategic management, the role of the environment in the development of the field of strategic management, the implications of the environment for strategic management, and the role and analysis of the common strategic environment and of the industry and business unit environment. Strategic management is concerned with, amongst other things, how firms relate to each other, whether by competing, cooperating, or just coexisting. Consequently, the most relevant distinction to be drawn amongst potential subsets of the strategic environment surrounding the firm is between those factors and conditions which affect all related firms.
James M. Poterba
This article summarizes the current operation of annuity markets and the potential role of these markets in providing retirement security. It is divided into six sections. The first describes the basic structure of annuity products, with particular reference to those that are currently available in the United States and the United Kingdom. The second section explains the standard analysis of why annuities are attractive to individuals who face uncertainty about length of life, and describes several hypotheses that have been advanced to explain the limited size of private annuity markets. The third section describes the standard methodology for comparing the expected present value of annuity payouts with their cost. The fourth section examines several aspects of individual demand for annuity products. The fifth section briefly discusses the role of regulation in annuity markets. The brief conclusion considers a number of emerging issues that bear on the role of private annuity markets in providing retirement-income security.
Biggest Infrastructure Bubble Ever?: City and Nation Building with Debt-Financed Megaprojects in China
Since the early 1990s, China has built more megaprojects than any other country in the world. This chapter examines the economic and sociopolitical conditions in China that have made the massive investment and construction of megaprojects possible, such as the deregulatory reforms in the land and housing sector and the rise of local investment corporations for megaproject financing. The chapter also compares megaproject developments before and after 2008—a tumultuous year marking both the Beijing Olympics and a global economic recession. Before 2008, the hosting of mega-events often legitimized the construction of megaprojects. After 2008, the recession became the new legitimizing tool, as the Chinese government implemented a large stimulus program that directed more investment in infrastructural megaprojects. With the slowdown of the Chinese economy, many local governments today find themselves in deep debt from overinvestment in infrastructural megaprojects over the past two decades. Examples from Shanghai, Beijing, and Guangzhou are used to illustrate the contested processes and mixed legacies of city building with megaprojects.
Co-operation as Co-ordination Mechanism: a new approach to the economics of co-operative enterprises
Carlo Borzaga and Ermanno C. Tortia
The interpretations hitherto produced on co-operatives firms have been, in general terms, unsatisfactory. The reasons are to be found in the limitations of the dominant theoretical paradigms in interpreting the individual, collective, and social reality of co-operation. Recent theoretical developments allow a new start in dealing with the most relevant economic dimensions of co-operation, by: (i) recognizing co-operation as a peculiar and basic co-ordination mechanism of the economic activity, different from market exchange and authority; (ii) considering collective and mutually beneficial entrepreneurial action, and not only individual action, as legitimate and fruitful; (iii) understanding economic motivations not only as self-interested and opportunistic ones, but also as intrinsically driven, as reciprocal, and as social. Starting from the analysis of the main market imperfections we develop a theory of co-operatives as enterprises that do not, as a norm, maximize net economic returns as their main objective, but instead pursue mutually beneficial and social aims.
Lyda Bigelow, Jennifer Kuan, and Kyle Mayer
Regional differences among industry clusters have long been a puzzle, especially when performance differences are significant. This chapter examines the case of venture capital investing, in which Silicon Valley differs from the rest of the world despite attempts to imitate its model. The point of entry in this chapter is the contract between venture capitalist and entrepreneur. Although such contracts have been analyzed in other research, this chapter argues that the psychological effects of different contract styles are of primary importance to innovative outcomes of entrepreneurial ventures. Thus, it argues that regulatory focus theory, which considers the psychological effects of contracting, is essential to understanding differences in practice and outcomes in venture capital clusters.
David O. Faulkner
This article aims to establish the rationale for cooperation between companies, to investigate the motives for developing cooperative relationships, to identify the nature and functioning of strategic alliances, and to identify the nature and functioning of strategic networks. At this moment in history the companies of the East are showing themselves to be able to compete successfully against those of the West in an increasing number of industries. Despite the West's claims to be the birthplace of the industrial capitalist system, its economic dominance for the nineteenth century and the first half of the twentieth, and its emergence from World War II in a position of supreme power, and world leadership in automobiles, electronics, steel, textiles, shipbuilding, and pharmaceuticals either has passed or arguably is in the process of passing to the East.
Bryan R. Routledge
This article presents some background on shareholder unanimity and governance in general and specific to issues related to environmental impact. It offers a simple example to show how and why the Net Present Value (NPV) rule works. It then takes a look at how things might work—and the vast sea of open questions—in the corporate governance of voting, corporate control, and manager-shareholder agency. The NPV rule is a central foundation of finance and modern corporations. The “simple” solution to public good and externality is regulation that has the effect of adjusting cash flows to reflect properly the social value. Most corporations have in place a voting mechanism that is one-share one-vote with a majority rule. CEO preferences are not observed and must be elicited in an interview or through some self-selection mechanism. A direct way to confront corporations with environmental concerns is with their cash flow implications.
Charles H. Cho, Dennis M. Patten, and Robin W. Roberts
This article investigates why corporations make environmental disclosures in their financial reports, addressing two major theories utilized in related accounting research. It also describes how economic theories of stock-market behavior are used to evaluate whether the market values corporate environmental information contained in financial reports. These two streams of research are related to newer, potentially productive avenues of research related to environmental financial reporting and financial markets. Research into the extent of corporate environmental disclosure shows that, while a number of environmental disclosure regulations are in place, problems with oversight, monitoring, and enforcement by the agencies responsible for implementation has led to relatively low levels of environmental disclosure in corporate financial reports. Recent trends in environmental disclosure and reporting practices suggest a largely increasing number of stand-alone reports, which include social, environmental, and economic/financial information reflecting what is referred to as triple bottom line reporting.
J. Michael Orszag and Neha Sand
Regardless of whether pensions are defined benefit or defined contribution, pension assets are an important segment of financial markets. But the implications for corporate finance are dramatically different if the pension-benefit structure is defined benefit or defined contribution. If a pensions are defined contribution, the employer provides no explicit or implicit guarantee and therefore its pension arrangements do not contribute to its debt. Even in systems with insured defined-contribution arrangements such as are predominant in Denmark, the direct guarantee obligation lies with insurance companies and not with employers. Low levels of funding, however, may require increased employer contributions, thereby creating, to an extent, an implicit liability. Where pensions are defined benefit, the pension liability is a direct part of the capital structure of the sponsoring employer. This article provides a broad overview of the corporate finance of pensions, starting with the theoretical contributions of Sharpe and others. After reviewing the theory, it summarizes the empirical evidence and then discusses unresolved issues in the literature.
David S. Boss, Brian L. Connelly, Robert E. Hoskisson, and Laszlo Tihanyi
This chapter studies the influence of a single type of owner or form of ownership. It analyzes ownership at a broader level and compares the different types of owner. It then shows how they act independently and together in order to influence the outcomes of a firm. It stresses that while these types of owner may share some similarities, they have different preferences, incentives, and motivations. These differences may lead to conflicts, which leave top-level managers with difficult choices and competing pressures with regard to their firm’s strategic direction. The final section of the chapter presents some suggestions on future research that could help in understanding the influence of a portfolio of owners on the outcomes and actions at the firm level.
Ann K. Buchholtz, Jill A. Brown, and Kareem M. Shabana
Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. This article outlines the relationship between corporate governance and corporate social responsibility (CSR). It begins by examining the role of corporate governance in creating value for shareholders. It focuses on the actions of the corporation and the board toward its shareholders and other stakeholders, i.e., how corporate governance serves or fails to serve their interests. It covers the assumptions that underlie theories of corporate governance and the expected outcomes of various board structures and compositions. It then examines the state of corporate democracy, the issue of accountability, and key legislation relative to corporate governance.
Stephen Brammer and Stephen Pavelin
This chapter is concerned with the latest empirical and theoretical studies about the corporate governance–corporate social responsibility relationship. It notes that the academic literatures on both topics are slightly displaced, and reviews some related literature on this relationship. It concludes that there is no available theoretical and empirical consensus on the corporate governance–corporate social responsibility relationship, and that there is hardly any literature that has major practical significance to policymakers or managers. The chapter also includes a guide for additional research on the topic.
Andrew Pendleton and Howard Gospel
This chapter addresses the argument that there are three primary actors in corporate governance: owners, managers, and labor. The discussion centers on the effects of governance regimes and practices on labor and the role of labor in corporate governance. It studies the perspectives on corporate governance regimes and identifies the possible ways labor is involved in governance. The chapter also includes a model that features the impacts of corporate governance on labor, and which also shows how governance can affect rewards, industrial relations, employment, work organization, industrial relations, and skills development.
Mike W. Peng and Steve Sauerwald
This chapter discusses the problem of principal–principal (PP) conflicts between minority shareholders and controlling shareholders. It shows that these conflicts lead to major governance problems all over the world. It first considers the forerunners of PP conflicts, and then studies the possible remedies in the form of external and internal governance mechanisms. The chapter also emphasizes the relevant organizational consequences of PP conflicts in four crucial areas: tunneling/self-dealing, executive compensation, managerial talent, and mergers and acquisitions.
Daphne W. Yiu, Xing Chen, and Yuehua Xu
Whether a large business group is multinational or not, it needs to form distinct governance mechanisms in order to govern its affiliates. In this chapter, certain issues related to these mechanisms are addressed. The chapter identifies horizontal and vertical governance mechanisms that are usually found in business groups and stresses that business groups also experience significant governance problems, such as mutual entrenchment and cross-subsidization. The chapter also examines in detail the way governance structures and related governance outcomes differ among state-owned, family-controlled, and widely held business groups.
Fabio Bertoni, Massimo G. Colombo, and Annalisa Croce
This chapter surveys available literature on corporate governance’s role in the pioneering activity of high-tech firms. It addresses the argument that a value-protection perspective only provides a partial understanding of the scope of corporate governance in high-tech companies, and that a value-creation perspective should be used instead. It then analyzes three dimensions of corporate governance: external governance mechanisms, ownership structure, and internal governance mechanisms. This analysis shows that the value-protection dimension of corporate governance is usually limited in high-tech companies.
Igor Filatotchev and Deborah Allcock
Stock market entry through an initial public offering (IPO) serves as one stage in the life cycle of a firm. This chapter explores corporate governance in an IPO and evaluates governance issues at an IPO. It first presents some important keys to certain governance influences that affect firms at this point in their life cycle. It then lists the areas of challenge for the firm during this stage and notes that the IPO market and the challenges for companies forming strong governance mechanisms are quickly changing. The chapter also raises some policy issues that can be found at this stage of a firm’s development.
At any point in time, the structure of the corporation is the result of an evolutionary process that reflects strategic investment decisions to serve particular markets, engage in particular activities, and produce in particular locations. Restructuring occurs when the corporation is not willing or able to utilize the capabilities and assets that are the legacy of past decisions. Under adverse economic conditions that cut across industrial sectors or firms within a sector, large numbers of companies in the same nation or region may engage in restructuring at the same time. Such restructuring can have a negative impact on national or regional employment, especially when restructuring involves large-scale downsizing or the closing or locational shift of a labor-intensive facility. Thus, restructuring can have profound impacts on the quality and quantity of jobs available in the economy.
The community of Business and Society scholars has been investigating the relationship between corporate social performance and corporate financial performance over thirty years. The typical conclusion, based on narrative reviews of this literature, is that the empirical evidence is too mixed to allow for any firm. In these reviews, poor measures and weak theory construction are often mentioned as causes of this apparent variability in findings. The assumption that this research stream is inconclusive has persisted until after the turn of the millennium. So, what may be required at this point is a critical examination of the evidence that seems to have motivated these conclusions. This article argues that certain types of literature reviews should be treated with caution. It proposes an alternative and uses this more rigorous methodology of literature reviews in order to assess the cumulative evidence on the core constructs.