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The Anglo-Saxon Approach to Corporate Governance and its Applicability to Emerging Markets

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  • Dennis C. Mueller

Abstract

Almost all firms start out as small, owner-managed companies. Many stay that way throughout their lives. Some create attractive investment opportunities, however, that will allow them to grow rapidly and become leading companies in their country. These firms typically do not have sufficient internal funds flows and must turn to external sources of finance. Among these is the issuance of equity. Once a firm sells shares, however, the cost of the managers engaging in on-the-job consumption falls, and they can be expected to do so at the expense of their shareholders. Knowing this, potential shareholders may be unwilling to purchase a new offering of a young firm's shares, and the firm with attractive investment opportunities is unable to finance them. Strong corporate governance institutions help to protect shareholders from the discretionary use of their firm's resources. This paper reviews the case for having strong corporate governance institutions to facilitate the creation of thick equity markets in the context of developing countries in emerging markets, and examines the case for relying on alternative sources of capital including the state. Copyright (c) 2006 The Author; Journal compilation (c) 2006 Blackwell Publishing Ltd.

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  • Dennis C. Mueller, 2006. "The Anglo-Saxon Approach to Corporate Governance and its Applicability to Emerging Markets," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(4), pages 207-219, July.
  • Handle: RePEc:bla:corgov:v:14:y:2006:i:4:p:207-219
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    1. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    2. Ajit Singh & Jack Glen & Ann Zammit & Rafael De-Hoyos & Alaka Singh & Bruce Weisse, 2005. "Shareholder Value Maximisation, Stock Market and New Technology: Should the US Corporate Model be the Universal Standard?," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(4), pages 419-437.
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    Cited by:

    1. repec:kap:jbuset:v:142:y:2017:i:2:d:10.1007_s10551-015-2752-8 is not listed on IDEAS
    2. Hearn, Bruce, 2013. "The impact of board governance on director compensation in West African IPO firms," Research in International Business and Finance, Elsevier, vol. 28(C), pages 82-104.
    3. Jyoti Mahadeo & Teerooven Soobaroyen & Vanisha Hanuman, 2012. "Board Composition and Financial Performance: Uncovering the Effects of Diversity in an Emerging Economy," Journal of Business Ethics, Springer, vol. 105(3), pages 375-388, February.
    4. repec:ebl:ecbull:eb-17-00746 is not listed on IDEAS

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