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Path Dependence, Corporate Governance and Complementarity

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  • Schmidt, Reinhard H
  • Spindler, Gerald

Abstract

The concept of path dependence can be used to challenge the widespread view that the corporate governance systems of the major advanced economies are likely to converge towards the economically best system at a rapid pace. This paper argues that it is important for the discussion of path dependence and corporate governance to distinguish clearly between two arguments that can explain path dependence: one based on the role of adjustment costs, and the other using concepts borrowed from evolutionary biology. Making this distinction is important because the two concepts of path dependence have different implications for the issue of rapid convergence to the best corporate governance system. The authors introduce the concept of complementarity as a reason for path dependence and demonstrate that national corporate governance systems are usefully regarded as--possibly consistent--systems of complementary elements. The dynamic properties of systems composed of complementary elements are such that a rapid convergence towards a universally best corporate governance systems is not likely to happen. More importantly, though, there is even the possibility of a convergence towards a common system that is economically inferior. Especially in the case of European integration, "inefficient convergence" of corporate governance systems is a real possibility. Copyright 2002 by Blackwell Publishers Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal International Finance.

Volume (Year): 5 (2002)
Issue (Month): 3 (Winter)
Pages: 311-33

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Handle: RePEc:bla:intfin:v:5:y:2002:i:3:p:311-33

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Cited by:
  1. Schmidt, Reinhard H., 2003. "Corporate Governance in Germany: An Economic Perspective," CFS Working Paper Series 2003/36, Center for Financial Studies (CFS).
  2. Stefan Beiner & Wolfgang Drobetz & Markus M. Schmid & Heinz Zimmermann, 2004. "Corporate Governance, Unternehmensbewertung und Wettbewerb - eine Untersuchung für die Schweiz," Working papers 2004/01, Faculty of Business and Economics - University of Basel.
  3. Sudi Sudarsanam & Tim Broadhurst, 2012. "Corporate governance convergence in Germany through shareholder activism: Impact of the Deutsche Boerse bid for London Stock Exchange," Journal of Management and Governance, Springer, vol. 16(2), pages 235-268, May.
  4. August Turina, 2004. "Complexity and innovation in business systemswith focus on transitional countries," Interdisciplinary Description of Complex Systems - scientific journal, Croatian Interdisciplinary Society Provider Homepage: http://indecs.eu, vol. 2(2), pages 104-118.
  5. Harilaos Mertzanis, 2011. "The effectiveness of corporate governance policy in Greece," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(3), pages 222-243, July.
  6. Sergey Stepanov, 2010. "Shareholder access to manager-biased courts and the monitoring/litigation trade-off," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 270-300.
  7. Noriyuki Tsunogaya & Parmod Chand, 2012. "The Complex Equilibrium Paths towards International Financial Reporting Standards (IFRS) and the Anglo-American Model: The Case of Japan," The Japanese Accounting Review, Research Institute for Economics & Business Administration, Kobe University, vol. 2, pages 117-137, December.
  8. Armour, J. & Deakin, S. & Mollica, V. & Siems, M.M., 2010. "Law and Financial Development: What we are learning from time-series evidence," ESRC Centre for Business Research - Working Papers wp399, ESRC Centre for Business Research.
  9. Sadowski, Dieter & Junkes, Joachim & Lindenthal, Sabine, 1999. "Labour co-determination and corporate governance in Germany: The economic impact of marginal and symbolic rights," Quint-Essenzen 60, Institute for Labour Law and Industrial Relations in the European Community (IAAEG), University of Trier.

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