Objectivity, Proximity and Adaptability in Corporate Governance

Arnoud Boot and Jonathan R. Macey

No 266, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Countries appear to differ considerably in the basic orientations of their corporate governance structures. We postulate the trade-off between objectivity and proximity as fundamental to the corporate governance debate. We stress the value of objectivity that comes with distance (e.g. the market oriented U.S. system), and the value of better information that comes with proximity (e.g. the more intrusive Continental European model). Our key result is that the optimal distance between management and monitor (board or shareholders) has a bang-bang solution: either one should capitalize on the better information that comes with proximity or one should seek to benefit optimally from the objectivity that comes with distance. We argue that this result points at an important link between the optimal corporate governance arrangement and industry structure. In this context, we also discuss the ways in which investors have "contracted around" the flaws in their own corporate governance systems, pointing at the adaptability of different arrangements.

Keywords: corporate governance; comperitive systems; corporate finance; economic reform; convergence (search for similar items in EconPapers)
Pages: pages
Date: 1999-09-01
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Citations: View citations in EconPapers (5)

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Working Paper: Objectivity, Proximity and Adaptability in Corporate Governance (1999)
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