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Corporate Governance, Competetion, The new International Financial Architecture and Large Corporations in Emerging Markets

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  • Singh, Ajit
  • Singh, Alaka
  • Weisse, Bruce

Abstract

This paper examines from the developing countries perspective important analytical and policy issues arising from: a) the current international discussions about corporate governance in relation to the New International Financial Architecture; b) changes in the international competitive environment being caused by the enormous international merger movement in advanced countries. The background to a) above is the emergence of corporate governance as a key issue in the current G7 proposals for the New International Financial Architecture. The G7 emphasis on corporate governance can be traced back to the thesis that the ‘deeper’ reasons for the Asian crisis lay in the microeconomic behaviour of corporations and businesses in the affected countries. The failings of the corporate governance mechanisms and distortions in the competitive process have received special scrutiny in such analyses. With respect to b) above, the context is that the largest corporations in advanced countries are currently in the process of potentially cartelising the world market place through a spate of cross-border mergers and take-overs. This huge merger movement raises serious policy concerns for developing countries. The paper's main conclusions are: 1. The thesis that the deeper causes of the Asian crisis were the flawed systems of corporate governance and a poor competitive environment in the affected countries is not supported by evidence. 2. The Anglo-Saxon model of widely held corporations with dispersed share ownership is by far the exception in developing countries and in much of continental Europe. Empirical evidence suggests that emerging markets, as well as European countries such as Italy, Sweden or Germany have successful records of fast long-term growth with different governance systems, indeed superior to those of Anglo-Saxon countries. 3. Empirical evidence does not support the view that the Asian crisis 1997 to 1999 was caused by crony capitalism. 4. Corporate financing patterns in emerging markets in the 1990s were broadly similar to those observed in the 1980s. Unlike their counterparts in advanced countries, large developing countries firms continued to rely overwhelmingly on external sources to finance their growth of total assets. 5. The analysis of this paper does not support the claim that developing country conglomerates are inefficient, financially precarious and necessarily create moral hazard. It also indicates that contrary to widely held beliefs, product market competition in emerging countries is no less intense than in advanced economies. Acknowledgements Please do not quote without permission from the authors. Comments are most welcome.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24305.

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Date of creation: Dec 2002
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Handle: RePEc:pra:mprapa:24305

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Keywords: Competition; Corporate Governance; Emerging Markets;

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References

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  1. Ajit Singh, 1998. "Financial liberalisation, stockmarkets and economic development," Nova Economia, Economics Department, Universidade Federal de Minas Gerais (Brazil), vol. 8(1), pages 165-182.
  2. Armen A. Aichian & Reuben A. Kessel, 1962. "Competition, Monopoly, and the Pursuit of Pecuniary Gain," NBER Chapters, in: Aspects of Labor Economics, pages 157-184 National Bureau of Economic Research, Inc.
  3. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
  4. Singh, A., 1997. "Liberalisation, the Stock Market and the Market for Corporate Control: A Bridge Too Far for the Indian Economy?," Accounting and Finance Discussion Papers 97-af35, Faculty of Economics, University of Cambridge.
  5. Amjad,Rashid, 2008. "Private Industrial Investment in Pakistan," Cambridge Books, Cambridge University Press, number 9780521053617, Fall.
  6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  7. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  8. Singh, Ajit & Zammit, Ann, 2000. "International Capital Flows: Identifying the Gender Dimension," World Development, Elsevier, vol. 28(7), pages 1249-1268, July.
  9. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  10. Singh, Ajit, 1998. "Financial crisis in East Asia: "The end of the Asian model"?," MPRA Paper 53539, University Library of Munich, Germany.
  11. Singh, Ajit, 1997. "Savings, investment and the corporation in the East Asian miracle," MPRA Paper 53884, University Library of Munich, Germany.
  12. Glen, Jack & Lee, Kevin & Singh, Ajit, 2000. "Competition, corporate governance and financing of corporate growth in emerging markets," MPRA Paper 53625, University Library of Munich, Germany.
  13. Singh, Ajit, 1998. "The Asian Model: A Crisis Foretold?," MPRA Paper 24683, University Library of Munich, Germany.
  14. Erik BERGLÖF & Ernst-Ludwig VON THADDEN, 1999. "The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9912, Université de Lausanne, Faculté des HEC, DEEP.
  15. Eric Friedman & Simon Johnson & Peter Boone & Alasdair Breach, 1999. "Corporate Governance in the Asian Financial Crisis," Departmental Working Papers 199920, Rutgers University, Department of Economics.
  16. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 110.
  17. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  18. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
  19. Sidney G. Winter, 1964. "Economic "Natural Selection" and the Theory of the Firm," LEM Chapters Series, in: Yale Economic Essays, pages 225-272 Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  20. Jensen, Michael C, 1988. "Takeovers: Their Causes and Consequences," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 21-48, Winter.
  21. Singh, A. & Weisse, B. A., 1998. "Emerging Stock Markets, Portfolio Capital Flows and Long-term Economic Growth: Micro and Macroeconomic Perspectives," Accounting and Finance Discussion Papers 98-af40, Faculty of Economics, University of Cambridge.
  22. Goddard, J. A. & Wilson, J. O. S., 1999. "The persistence of profit: a new empirical interpretation," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 663-687, July.
  23. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  24. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
  25. Whittington, G & Saporta, V & Singh, A, 1997. "The Effects of Hyper-Inflation on Accounting Ratios. Financing Corporate Growth in Industrial Economies," Papers 3, World Bank - International Finance Corporation.
  26. James Tybout, 1998. "Manufacturing Firms In Developing Countries: How Well Do They Do, And Why?," Development and Comp Systems 9805004, EconWPA.
  27. Singh, Ajit & Singh, Alaka & Wiesse, Bruce, 2000. "Information technology, venture capital and the stock market," MPRA Paper 53718, University Library of Munich, Germany.
  28. Connolly, Robert A. & Schwartz, Steven, 1985. "The intertemporal behavior of economic profits," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 379-400, December.
  29. Leff, Nathaniel H, 1978. "Industrial Organization and Entrepreneurship in the Developing Countries: The Economic Groups," Economic Development and Cultural Change, University of Chicago Press, vol. 26(4), pages 661-75, July.
  30. Vives,Xavier (ed.), 2000. "Corporate Governance," Cambridge Books, Cambridge University Press, number 9780521781640, Fall.
  31. Khanna, Tarun, 2000. "Business groups and social welfare in emerging markets: Existing evidence and unanswered questions," European Economic Review, Elsevier, vol. 44(4-6), pages 748-761, May.
  32. Geroski, Paul A & Jacquemin, Alexis, 1988. "The Persistence of Profits: A European Comparison," Economic Journal, Royal Economic Society, vol. 98(391), pages 375-89, June.
  33. Leff, Nathaniel H, 1979. "Entrepreneurship and Economic Development: The Problem Revisited," Journal of Economic Literature, American Economic Association, vol. 17(1), pages 46-64, March.
  34. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-65, December.
  35. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73, pages 351.
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Citations

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Cited by:
  1. Ajit Singh, 2003. "Competition, corporate governance and selection in emerging markets," Economic Journal, Royal Economic Society, vol. 113(491), pages F443-F464, November.
  2. John Armour & Simon Deakin & Prabirjit Sarkar & Mathias Siems & Ajit Singh, 2008. "Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis," WEF Working Papers 0041, ESRC World Economy and Finance Research Programme, Birkbeck, University of London.
  3. Ajit Singh & Ann Zammit, 2006. "Corporate Governance, Crony capitalism and Economic Crisis: Should the US Business Model replace the Asian Way of 'Doing Business'?," ESRC Centre for Business Research - Working Papers wp329, ESRC Centre for Business Research.
  4. Singh, Ajit, 2003. "Corporate governance, corporate finance and stock markets in emerging countries," MPRA Paper 24302, University Library of Munich, Germany.
  5. Reaz, Mazrur & Arun, Thankom G., 2005. "Corporate Governance in Developing Economies: Perspective from the Banking Sector in Bangladesh," Development Economics and Public Policy Working Papers 30545, University of Manchester, Institute for Development Policy and Management (IDPM).
  6. Michael Graff, 2013. "Legal origin and financial development: new evidence for old claims? The creditor rights index revisited," International Journal of Trade and Global Markets, Inderscience Enterprises Ltd, vol. 6(4), pages 326-344.
  7. Singh, Ajit, 2003. "Corporate governance, the big business groups and the G-7 reform agenda: A critical analysis," MPRA Paper 24663, University Library of Munich, Germany.
  8. Christoph Walkner, 2004. "Issues in corporate governance," European Economy - Economic Papers 200, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  9. Simon deakin & Ajit Singh, 2008. "The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy," ESRC Centre for Business Research - Working Papers wp365, ESRC Centre for Business Research.
  10. Michael Graff, 2006. "Myths and Truths: The «Law and Finance Theory» Revisited," KOF Working papers 06-122, KOF Swiss Economic Institute, ETH Zurich.
  11. Michael Graff, 2005. "Law and Finance: Common-law and Civil-law Countries Compared," KOF Working papers 05-99, KOF Swiss Economic Institute, ETH Zurich.

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