Project in detail

Project Corporate Governance

Members of this project:



The issue of corporate governance has assumed increasing importance in both academic and economic debate in recent years. Political discussion focuses on legal aspects such as new standards to promote good management practice or new transparency and liability rules. The science of economics on the other hand is concerned with the analysis of various systems by which companies are directed and controlled (such as the influence of corporate owners or creditors) and the impact these systems have on the success of the company. The MEA’s Corporate Governance project involves an empirical analysis of corporate governance in Germany. This subject is so important because a new retirement pension system will lend much greater weight to institutional investors on the capital market than was the case in the past – with potentially huge effects on the corporate governance of German companies. The first phase of the project concentrated on laying the methodological groundwork and accumulating comprehensive data. The corporation database created during this first phase is the largest of its kind in Germany and has been used for various studies. These include: (1) Describing changes in the ownership structure of companies and the causes and effects of such changes, (2) analyzing the determinants and processes of company failures and takeovers, and (3) analyzing the relationship between corporate governance and companies’ business success (particularly in terms of productivity growth). One of the important results of this initial project phase is the insight that the ownership structure of German corporations is much more dynamic than is commonly assumed. As a result – and similar to the situation in the USA and the United Kingdom – there is also a market for important and effective company control in Germany. The project has also demonstrated that good corporate governance and intense competition on sales markets have a positive effect on the growth of total factor productivity. This means that secondary effects may arise as social security systems become more geared towards the capital market – such as the impact of changed corporate governance on productivity growth as a result of changes in the ownership structure of companies. These factors need to be taken into account when analyzing the costs of a change of system. In the second phase of the project the analysis of German corporate governance will be supplemented by an analysis of British corporate governance. Germany and the United Kingdom have two entirely different systems of corporate governance: the German system is usually described as bank based, the British system as market based. The idea is to find out more about the way corporate governance works by examining the systematic differences between the two countries. Of particular interest is the role of institutional investors (such as pension funds) who have played a very minor role in Germany to date but who are almost certainly destined to become more important in the wake of public pension reform.

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