We examine the equity ownership structure and board composition of a sample of 583 "rms over the ten-year period 1983}1992. Our evidence suggests that a substantial fraction of "rms exhibit large changes in ownership and board structure in any given year. These changes are correlated with one another and are not reversed in subsequent years. Ownership and board changes are strongly related to top executive turnover, prior stock price performance, and corporate control threats, but only weakly related to changes in "rm-speci"c determinants of ownership and board structure. Furthermore, large ownership changes are typically preceded by economic shocks and followed by asset restructurings. � 1999 Elsevier Science S.A. All rights reserved.

This paper addresses the agency problem between controlling shareholders and minority shareholders. This problem is common among public firms in many countries where the legal system does not effectively protect minority shareholders against oppression by controlling shareholders. We show that even without any explicit corporate governance mechanisms protecting minority shareholders, controlling shareholders can implicitly commit not to expropriate them. Stock prices of such companies are significantly higher and firms are more likely go public because of this reputation effect. Moreover, insiders divest shares gradually over time, at a rate that is negatively related to the degree of moral hazard. RECENT EMPIRICAL RESEARCH INDICATES THAT in many countries the relevant corporate finance issue is not the traditional agency problem between management and shareholders, but rather the agency problem between the controlling shareholders and the minority shareholders. This problem may arise in some countries for two reasons: ~1! the corporate governance structure of public

This paper provides an overview of the main theoretical elements and empirical underpinnings of a “managerial power ” approach to executive compensation. The managerial power approach recognizes that boards of publicly traded companies with dispersed ownership do not bargain at arms ’ length with managers, and that managers are able to influence their own pay arrangements. It thus views executive compensation not only as an instrument for addressing the agency problem between managers and shareholders, but also as part of the problem itself. We show that the managerial power approach can help explain many features of the executive compensation landscape, including ones that researchers have long viewed as puzzling. We explain that managerial influence produces efficiency costs because managers ’ seeking and camouflaging of rents produces

orporate governance is generally considered to be the set of complementary mechanisms that help align the actions and choices of managers with the interests of shareholders. Monitoring actions by the board of directors, debtholders, or

The issue of public versus private ownership turns on three questions: (1) does competition matter more than ownership? (2) are state enterprises are more subject to welfare reducing interventions by government than are private firms? And (3) do state enterprises suffer more from corporate governance problems than private firms? Even if the answers to these questions favors private ownership, we must still ask whether distortions in the process of privatization mean that privatized firms perform worse than state enterprises. Our review found greater ambiguity about the merits of private ownership and privatization in theory than in the empirical literature. Empirical research comparing private or privatized firms with a state owned counterfactual documented gains in most cases. JEL Codes: L32 Public Enterprises; L33 Boundaries of Public and Private Enterprise; Privatization; Contracting Out; D21 Firm Behavior; D23 Organizational Behavior; Transactions Costs; Property Rights; 3 1.

This essay surveys the body of research that asks how the efficiency of corporate investment is influenced by problems of asymmetric information and agency. I organize the material around two basic questions. First, does the external capital market channel the right amount of money to each firm? That is, does the market get across-firm allocations right, so that the marginal return to investment in firm i is the same as the marginal return to investment in firm j? Second, do internal capital markets channel the right amount of money to individual projects within firms? That is, does the internal capital budgeting process get withinfirm allocations right, so that the marginal return to investment in firm i’s division A is the same as the marginal return to investment in firm i’s division B? In addition to discussing the theoretical and empirical work that bears most directly on these questions, the essay also briefly sketches some of the implications of this work for broader issues in both macroeconomics and the theory of the firm.

We survey two generations of research on corporate governance systems around the world, concentrating on countries other than the United States. The first generation of international corporate governance research is patterned after the US research that precedes it. These studies examine individual governance mechanisms – particularly board composition and equity ownership – in individual countries. The second generation of international corporate governance research recognizes the fundamental impact of differing legal systems on the structure and effectiveness of corporate governance and compares systems across countries. We would like to thank Orlin Dimitrov and David Offenberg for valuable research assistance. International Corporate Governance: A Survey I.

Recent research studying the link between law and finance has concentrated on countrylevel investor protection measures and focused on differences in legal systems across countries and legal families. Our paper extends this literature and provides a study of firmlevel corporate governance practices across emerging markets and a greater understanding of the environments under which corporate governance matters more. Our empirical tests show that better corporate governance is highly correlated with better operating performance and market valuation. More importantly, we provide evidence showing that firm- level corporate governance provisions matter more in countries with weak legal environments. These results suggest that well- governed firms benefit more in bad corporate governance environments and that firms can partially compensate for ineffective laws and enforcement by establishing good corporate governance and providing credible investor protection. Our tests also show that firm- level governance and performance is lower in countries with weak legal environments, suggesting that improving the legal system should rema in a priority for policymakers. 1.

This paper combines the agency theory of the firm with risk diversification incentives for insiders. Principal-agent problems between insiders and outsiders force insiders to retain a larger share in their firm than they would under a perfect risk diversification strategy. We predict that this higher share of insider ownership and the resulting exposure of insiders to higher idiosyncratic risk will result in underinvestment and higher cost of capital. Using firm-level data from 38 countries, the authors provide evidence in support of their theoretical model, showing that the premium for bearing idiosyncratic risk varies between zero and six percent and decreases in the level of outside investor protection. The results of the paper imply that policies aimed at strengthening investor protection laws and their enforcement will improve capital allocation and result in higher growth.

The Czech Republic's mass-privatization scheme changed the governance of many firms in a short period of time. We show that it was effective in improving firms ' management because of the concentrated ownership structure which resulted. For a cross-section of 706 firms over the 1992-95 period, we find that the more concentrated ownership is, the higher the market valuation of a firm and the higher its profitability. Large ownership by investment funds sponsored by banks and strategic investors appears to be particularly important in improving corporate governance and turning around firms. We do not find evidence that market valuation or profitability was lower for firms in which investment funds sponsored by a firm's main bank have a large ownership stake, which, as often argued, could be the result of the associated conflicts of interest. At the opposite, we find a significantly positive influence of the main-bank having (indirect) ownership control. This suggests that banks on balance provide a positive role in corporate governance when they also have an (indirect) equity stake in a firm. World Bank. This paper was presented at the International Symposium on Capital Markets and Enterprise Reform in Beijing, November 8-9, 1996. The opinions expressed do not necessarily represent those of the World Bank. We