Editorial BoardXML

Seoul Journal of Economics - Vol. 15 , No. 2
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 15, No. 2, pp. 103-148
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 May 2002
Received 29 Aug 2002 Revised 22 Feb 2003

Corporate Governance, the Big Business Groups and the G-7 Reform Agenda: A Critical Analysis
Ajit Singh
Professor of Economics at the University of Cambridge and Senior Fellow of Queens' College Cambridge, Queens' College, Silver Street, Cambridge, CB3 9ET, Tel: +44-1223-350-4341 (Ajit.singh@econ.cam.ac.uk)

JEL Classification: G30, G32, G33, G34

Abstract

Corporate governance has become an important issue of international significance since the Asian crisis of 1997-8. It forms a key part of the reform agenda of G-7 countries in their plans to institute a New International Financial Architecture to forestall future crises. This paper provides the essential background to G-7 proposals on corporate governance as the economic rationale for these proposals as suggested in the recent research on Law and Finance. The paper outlines the differences between corporate governance patterns among developed and developing countries; it also examines the relationship between corporate finance, the stock market and corporate governance in the form of crony capitalism does not explain the Asian crisis and that the Anglo-Saxon model of corporate economy and, indeed, for developing countries it is far from being the best way. This model's reliance on the stock market and consequently on that market's pricing process and takeover mechanism creates perverse incentives that can undermine long-term growth by accentuating the influence of short-term considerations. The last part of the paper addresses one of the key areas of controversy: the efficiency and viability of large conglomerate organisations in developing countries. In that context, particular attention is given to Korean business groups and to the international financial institutions' reform programme for these groups. The paper provides a critical review of these proposals.

Keywords: Corporate governance, Big business groups, Emerging markets, Asian crisis, G-7 reform agenda
References
1. Allen, F., and Gale, D. Comparing Financial Systems. London: The MIT Press, 2001.
2. Amsden, A. Asia's Next Giant: South Korea and Late Industrialization. New York: Oxford University Press, 1989.
3. Amsden, A. The Rise of “the Rest”: Challenges to the West from Late-Industrializing Economies. Oxford: Oxford University Press, 2000.
4. Amsden, A., and Hikino, T. “Project Executive Capability, Organisational Know-How and Conglomerate Corporate Growth in Late-Industrialisation.” Industry and Corporate Change 3 (No. 1 1994): 111-47.
5. Berglof, E., and von Thadden, L. The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries. Unpublished Working Paper, Sweden: Stockholm Institute of Transition Economics, 1999.
6. Berle, A., and Means, G. The Modern Corporation and Private Capital. New York: Macmillan, 1933.
7. Bhinde, A. “The Hidden Cost of Stock Market Liquidity.” Journal of Financial Economics 34 (1994): 331-51.
8. Camdessus, M. “Speech to Transparency International.” The IMF Survey, 9 February 1988.
9. Chandler, A. D. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass: Harvard University Press, 1977.
10. Chang, H-J, and Park, H-J. “An Alternative Perspective on Government Policy towards the Chaebol in Korea: Industrial Policy, Financial Regulations, and Political Democracy.” In Jwa S-H, and Lee I. (eds.), Korean Chaebol in Transition: Road Ahead and Agenda. Seoul, Korea: Economic Research Institute, pp. 83-7, 2000.
11. Claessens, S., Djankov S., and Lang L. “The Separation of Ownership and Control in East Asian Corporations.” Journal of Financial Economics 58 (Nos. 1-2 2000): 81-112.
12. Corbett, J., and Jenkinson, T. “How is Investment Finances? A Study of Germany, Japan, the United Kingdom and the United States.” Manchester School of Economics and Social Studies 65 (1997): 69-93.
13. Cosh, A., Hughes, A., and Singh, A. Take-overs and Short- Termism in the United Kingdom: Analytical and Policy Issues in the U.K. Economy. Institute for Public Policy Research, London, 1990.
14. Demirguc-Kunt, A., and Maksimovic, V. “Stock Market Development and Firm Financing Choices.” The World Bank Economic Review 10 (No. 2 1996): 354.
15. Feldstein, M. “ Trying to Do Too Much.” Financial Times, March 3, 1998.
16. Glen, J., Lee K., and Singh, A. Competition, Corporate Governance and Financing of Corporate Growth in Emerging Markets. Cambridge Discussion Paper in Accounting and Finance No. AF46, Department of Applied Economics, University of Cambridge, 2000.
17. Greenspan, A. Testimony Before the Committee on Banking and Financial Services. US House of Representatives, January 30, 1998.
18. Hughes, A. “The Impact of Mergers: A Survey of Empirical Evidence for the UK, 1950-90.” In J. Fairburn, and J. A. Kay (eds.), Mergers and Merger Policy. 2nd Edition, Oxford, 1989.
19. Iskander, M. R., and Chamlou, N. Corporate Governance: A Framework for Implementation. Washington DC: World Bank, 2000.
20. Johnson, S., Boone, P., Breach, A., and Friedman, E. “Corporate Governance in the Asian Financial Crisis.” Journal of Financial Economics 58 (Nos. 1-2 2000): 141-86.
21. Keynes, J. M. The General Theory of Employment Interest and Money. New York: Published by Harcourt, Brace and Company, 1936.
22. Khanna, T. “Business Groups and Social Welfare in Emerging Markets: Existing Evidence and Unanswered Questions.” European Economic Review 44 (Nos. 4-6 2000): 748-61.
23. Khanna, T., and Palepu, K. “Why Focused Strategies may Be Wrong for Emerging Markets.” Harvard Business Review 75 (No. 4 1997): 41-51.
24. Khanna, T., and Palepu, K. “The Right Was to Restructure Conglomerates in Emerging Markets.” Harvard Business Review 8 (1999): 271-310.
25. Khanna, T., and Yafeh, Y. Business Groups and Risk Sharing Around the World. Social Science Research Network (SSRN) Working Paper Series (http://papers.ssrn.com), January 25 2000.
26. Krause, L. “The Aftermath of the Asian Financial Crisis for South Korea.” Journal of the Korean Economy 1 (No. 1 2000): 1-22.
27. Krugman, P. The Return of Depression Economics. Harmondsworth: Penguin, 1999.
28. La Porta, R., Lopez-de-Silanes F., Shleifer A., and Vishny, R. W. “Legal Determinants of External Finance.” Journal of Finance 52 (1997): 1131-50.
29. La Porta, R., Lopez-de-Silanes F., Shleifer A., and Vishny, R. W. “Law and Finance.” Journal of Political Economy 106 (No. 6 1998): 1113-55.
30. La Porta, R., Lopez-de-Silanes F., Shleifer A., and Vishny, R. W. Investor Protection: Origins, Consequences, Reform. Harvard University, Manuscript, 1999.
31. La Porta, R., Lopez-de-Silanes F., Shleifer A., and Vishny, R. W. “Agency Problems and Dividend Policies Around the World.” Journal of Finance l58 (2000): 3-27.
32. Leff, N. “Industrial Organization and Entrepreneurship in Developing Countries: The Economic Groups.” Economic Development and Cultural Change 4 (No. 26 1978): 661-75.
33. Leff, N. “Entrepreneurship and Economic Development: The Problem Revisited.” Journal of Economic Literature 17 (1979): 46-64.
34. Maddison, A. Dynamic Forces in Capital Development: A Long-Run Perspective. Oxford: Oxford University Press, 1991.
35. Mayer, C. “Financial Systems, Corporate Finance and Economic Development.” In R. Glen Hubbard (ed.), Asymmetric Information, Corporate Finance and Investment. Chicago: University of Chicago Press, 1990.
36. Peacock, A., and Bannock, G. Corporate Take-overs and the Public Interest. Aberdeen: Aberdeen University press for the David Hume Institute, 1991.
37. Phelps, E. S. “The Global Crisis of Corporatism.” Wall Street Journal, 25 March, 1999.
38. Porter, M. E. “Capital Disadvantage: America's Falling Capital Investment System.” Harvard Business Review 70 (No. 5 1992): 65-82.
39. Ravenscraft, D. J., and Scherer, F. M. Mergers, Sell-offs and Economic Efficiency. Washington DC: Brookings Institution, 1987.
40. Scherer, F. M. “Corporate Take-overs: The Efficiency Argument.” Journal of Economic Perspectives 2 (No. 1 1988): 69-82.
41. Shiller, R. J. Irrational Exuberance. UK: Princeton University Press, 2000.
42. Shleifer, A., and Summers, L. “Breach of Trust in Hostile Take-overs” In Alan Auerbach (ed.), Corporate Take-overs: Causes and Consequences. Chicago: University of Chicago, pp. 33-61, 1988.
43. Shleifer, A., and Vishny, R. W. “A Survey of Corporate Governance.” Journal of Finance 52 (1997): 737-83.
44. Singh A. Take-overs, Their Relevance to the Stock Market and the Theory of the Firm. Cambridge: Cambridge University Press, 1971.
45. Singh A. “Take-overs, Economic Natural Selection and the Theory of the Firm.” Economic Journal 85 (1975): 497-515.
46. Singh A. “Corporate Takeovers.” In J. Eatwell, M. Milgate, and P. Newman (eds.), The New Palgrave Dictionary of Money and Finance. London: Macmillan, pp. 480-6, 1992.
47. Singh A. Corporate Financial Patterns in Industrializing Economies: A Comparative International Study. IFC Technical Paper. Washington, DC: IFC, 1995a.
48. Singh A. “The Causes of Fast Economic Growth in East Asia.” UNCTAD Review (1995b): 91-127.
49. Singh A. “Financial Liberalisation, Stock Markets and Economic Development.” Economic Journal 107 (No. 442 1997): 771-82.
50. Singh A. “Liberalisation, the Stock Market and the Market for Corporate Control: A Bridge Too Far for the Indian Economy?” In I. J. Ahluwalia, and I. M. D. Little (eds.), India's Economic Reforms and Development: Essays for Manmohan Singh. Oxford, pp. 169-96, 1998a.
51. Singh A. Financial Crisis in East Asia: The End of the Asian Model? Issues in Development, Discussion Paper 24, ILO, Geneva, 1998b.
52. Singh A. ““Asian Capitalism” and the Financial Crisis” In J. Michie, and J. Grieve Smith (eds.), Global Instability: The Political Economy of World Economic Governance. London: Routledge, pp. 9-36, 1999.
53. Singh A. “The Anglo-Saxon Market for Corporate Control: The Financial System and International Competitiveness.” In Howes Candice, and Ajit Singh. (eds.), Competitiveness Matters: Industry and Economic Performance in the US. Ann Arbor: University of Michigan Press, pp. 89-105, 2000.
54. Singh, A., and Hamid, J. Corporate Financial Structures in Developing Countries. Technical Paper 1, IFC, Washington DC., 1992.
55. Singh, A., and Weisse, B. “Emerging Stock Markets, Portfolio Capital Flows and Long-Term Economic Growth: Micro and Macro Perspectives.” World Development 26 (No. 4 1998): 607-22.
56. Singh, A., and Weisse, B. “The Asian Model: A Crisis Foretold?” International Social Science Journal (No. 160 1999): 203-15.
57. Singh, A., Singh, A., and Weisse, B. “Corporate Governance, Competition, the New International Financial Architecture and Large Corporations in Emerging Markets.” Forthcoming in Management and Capital Flows: Comparative Experiences and Implications for Africa. Geneva: UNCTAD, 2003.
58. Stein, J. C. “Efficient Stock Markets, Inefficient Firms: A Model of Myopic Corporate Behaviour.” Quarterly Journal of Economics 104 (November 1989): 655-69.
59. Summers, L. H. “Opportunities Out of Crises: Lessons From Asia.” Remarks to the Overseas Development Council, From the Office of Public Affairs, March 19, 1998.
60. Tobin, J. “On the Efficiency of the Financial System.” Lloyds Bank Review (July 1984): 1-15.
61. Whittington, G, Saporta, V., and Singh, A. The Effects of Hyper-Inflation on Accounting Ratios: Financing of Corporate Growth in Industrialising Economies. Technical Paper3, IFC, Washington, 1997.
62. Williamson, O. E. Markets and Hierarchies: Analysis and Antitrust Implications. New York: The Free Press, 1975.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.