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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 15, No. 2, pp.103-148
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

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