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Path Dependence, Corporate Governance and Complementarity

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  • Reinhard H. Schmidt

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  • Gerald Spindler

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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Suggested Citation

  • Reinhard H. Schmidt & Gerald Spindler, 2002. "Path Dependence, Corporate Governance and Complementarity," Working Paper Series: Finance and Accounting 27, Department of Finance, Goethe University Frankfurt am Main.
  • Handle: RePEc:fra:franaf:27
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    Cited by:

    1. 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.
    2. 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, University of Trier, Institute for Labour Law and Industrial Relations in the European Community (IAAEG).
    3. 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.
    4. 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 & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 235-268, May.
    5. Deakin, S. & Sarkar, P. & Singh, A., 2011. "An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development," Working Papers wp423, Centre for Business Research, University of Cambridge.
    6. Nicola Lacetera, 2001. "Corporate Governance and the Governance of Innovation: The Case of Pharmaceutical Industry," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 5(1), pages 29-59, March.
    7. Schmidt, Reinhard H., 2003. "Corporate Governance in Germany: An Economic Perspective," CFS Working Paper Series 2003/36, Center for Financial Studies (CFS).
    8. Marc Goergen & Christine A. Mallin & Eve Mitleton-Kelly & Ahmed Al-Hawamdeh & Iris H-Y Chiu, 2010. "Corporate Governance and Complexity Theory," Books, Edward Elgar Publishing, number 13927, April.
    9. 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.
    10. Armour, J. & Deakin, S. & Mollica, V. & Siems, M.M., 2010. "Law and Financial Development: What we are learning from time-series evidence," Working Papers wp399, Centre for Business Research, University of Cambridge.
    11. 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.
    12. Esther Pittroff, 2016. "Whistle-blowing regulation in different corporate governance systems: an analysis of the regulation approaches from the view of path dependence theory," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 20(4), pages 703-727, December.
    13. 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.
    14. Patrick Velte & Stefan Weber, 2011. "Outsider- und Insider-Systeme der Corporate Governance," Metrika: International Journal for Theoretical and Applied Statistics, Springer, vol. 21(4), pages 473-482, April.
    15. Udayasankar, Krishna & Das, Shobha & Krishnamurti, Chandrasekhar, 2008. "When is Two Really Company? The Effects of Competition and Regulation on Corporate Governance," Working Paper Series 4020, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.

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