Entrepreneurship and corporate governance

Conclusions The main message of this article is that Austrians can continue to work within the contractual, or Coasian, approach to the firm in elaborating the insights discussed above. In particular, the problem of corporate governance, and the corollary view that firms are investments, belongs at the forefront of Austrian research on the theory of the firm. Emphasis should thus be placed on the plans and actions of the capitalist-entrepreneur. A particularly undeveloped area concerns the provision of capital to small, “entrepreneurial” ventures. Most of the literature on governance focuses on the large corporation, and the use of stock and bond markets to govern these organizations. Equally important, however, are smaller, privately held firms, financed with venture capital or other forms of investment. So far, the firm-as-investment literature has said little about these organizations, despite their growing importance, particularly in high-growth, technologically-advanced industries like software and biotechnology. Further research in this area is sorely needed. Earlier versions of this article were presented at George Mason University’s “Seminars in Austrian Economics IV: Inside the Black Box,” October 1997; the Austrian Scholars Conference 4, Auburn University, April 1998; and Copenhagen Business School’s RESPECT workshop, November 1998.     

A review of corporate governance in China

The paper reviews the literature on internal and external corporate governance mechanisms in China. Chinese regulatory bodies have made considerable efforts to improve the corporate governance of listed firms. However, research has shown that most of the governance instruments that are effective in developed nations are less effective in China. We attribute the ineffectiveness to the large stake of the state in listed firms, strong political connections between listed firms and the government, and the lack of a truly independent judicial system. Some suggestions for making corporate governance more effective in China are provided.     

Research on reciprocal relationships between corporate governance and internal control

A lot of problems which are still in the relevant company governance and the internal control are demanded to be solved promptly. The company governance is still an exciting examination question in China. Though the internal control construction of China has been the suitable scale, but the connotation and the fixing position of the internal control are still in the stage of system control. Therefore it is still significant to be more thoroughly investigation and discussion to the company governance and the internal control. This paper gives the comprehensive examination to the company governance and the internal control progress from the angle of going to move from each other and it is necessary to conduct a research on their reciprocal relationships by combining corporate governance and internal control.     

Compensation negotiation and corporate governance: the evidence from China

This paper examines CEO pay dispersion for the listed companies in China. We apply a two-tier stochastic frontier model to the CEO compensation framework where asymmetric information generates a surplus between the minimum wage that CEOs accept and the maximum payment that firms offer. This surplus leads to CEO pay dispersion coming from the negotiation power between the CEO and the firm. We generate the surplus extracted by each CEO-firm pair and analyze how corporate governance affects them. An empirical analysis finds that: (1) On average, CEOs are paid 23.26% more than the benchmark; (2) additionally, we examine the bargaining power in state-owned enterprises (SOEs) and non-state-owned enterprises (non-SOEs). We find that CEOs in SOEs have less bargaining power due to compensation regulations. We then examine compensation for new CEOs hired externally and find that CEOs hired externally have less bargaining power on average; and (3) corporate governance has a significant effect on the salary bargaining power of each agent. More specifically, the CEO-Chairman dummy has a significant positive effect on the bargaining power of firms and CEOs, but the latter is larger. Board size has a negative effect on both. Independent directors help improve the bargaining power of the firms and board meeting times help enhance the bargaining power of the CEOs. Equity concentration has a significant negative effect on both sides.     

Corporate governance and incentive contracts: Historical evidence from a legal reform

This paper proposes to exploit a reform in legal rules of corporate governance to identify contractual incentives from the correlation of executive pay and firm performance. In particular, we refer to a major shift in the legal and institutional environment, the reform of the German joint-stock companies act in 1884. We analyze a sample of executive pay for 46 firms for the years 1870–1911. In 1884, a legal reform substantially enhanced corporate control, strengthened the monitoring incentives of shareholders, and reduced the discretionary power of executives in Germany. The pay–performance sensitivity decreased significantly after this reform. While executives received a bonus of about 3–5% in profits before 1884, after the reform this parameter decreased to a profit share of about 2%. At least the profit share that is eliminated by the reform most likely was incentive pay before. This incentive mechanism was replaced by other elements of corporate governance.     

Substitutes for legal protection: corporate governance and dividends in Victorian Britain1

Companies in Victorian Britain operated in a laissez‐faire legal environment from the perspective of outside investors, implying that such investors were not protected by the legal system. This article seeks to identify the alternative mechanisms that outside shareholders used to protect themselves by examining the dividend policy and governance of over 800 publicly traded companies at the beginning of the 1880s. We assess the importance of these mechanisms by estimating their impact on Tobin's Q. Our evidence suggests that dividends and well‐structured and incentivized boards of directors may have played a role in protecting the interests of outside investors.     

公司治理与独立董事运行机制研究

本文在公司治理机制-权力配置、制衡（监督）与激励理论基础上,假设独立董事与股东之间的关系在本质上是委托代理关系。在引入信息沟通机制、独立董事的能力、独立董事在董事会申的比例、道德支付和独立董事的兼职收入等变量基础上,封传统委托-代理模型进行了拓展。本文试图运用数理模型对独立董事制度的运行机制进行实证研究,通过封模型的分析,以期解释和检验中国独立董事制度运行机制效果。     

The institutional innovation and improvement in building of the East Asian corporate governance model

The East Asian corporate governance model is gradually established based on institutional innovation of western corporate governance. This paper holds that institutional innovation of the East Asian corporate governance model is mainly manifested in following aspects： the relational style of governance mechanisms, more intervention of government, high concentration of ownership structure and unique operation of the power institutions etc. This unique model of corporate governance is considered as one of the motivations of ＂East Asian Miracle＂, but it also causes many problems. After the Asian financial crisis, the East Asian countries and regions reform and improve their pattern of corporate governance and obtain some results. The paper deems that reduction of government intervention and legal protection provided by judicial system are crucial for corporate governance.     

Strong insiders,weak outsiders: A critical look at the Korean system of corporate governance

This study examines the approach of five Caspian coastal states ‐ Russia, Iran, Azerbaijan, Kazakhstan, and Turkmenistan‐toward the legal regime regarding the Caspian Sea in the 1990s. In particular, it tests the neorealist hypothesis regarding relative gains in explaining the approach of those five Caspian coastal states. This study demonstrates that concerns about relative gains matter, but not universally. Azerbaijan and Kazakhstan consistently pursued relative gains strategy. Yet, in the cases of three other Caspian states, Russia, Iran, and Turkmenistan, concerns about relative gains were not critical in determining the policy direction of these states.     

Cleaning the balance sheets of commercial banks in Eastern Europe and their role in corporate governance

We have… the makings of a genuine paradox that constitutes the most fundamental systemic obstacle to the economictransformation in Eastern Europe: the most impor tant aspect of the transition to a spontaneously functioning market economy cannot be initiated by market forces themselves. Indeed, the only force powerful enough to set the market forces in motion is the very state that is suppo sed to remove itself from the picture. And for a number of reasons, the state may be unable to accomplish this task. Frydman and Rapaczynski [ b, p. 268].     

Industrial policy,corporate governance,and the competitiveness of China's national champions: The case of Shanghai Baosteel Group

The paper presents an in-depth case study of the Shanghai Baosteel Group as a contribution to the overall assessment of the competitiveness and catch-up capability of the Chinese national champions after China's WTO accession. Significant competitive advantages of the firm in the domestic industry are identified, with cautionary remarks concerning the future stiff competition with the global steel giants. Through detailed examinations of the corporate governance mechanism and the industrial policy implementation in Baosteel and the whole steel sector, the paper sheds light on the institutional and policy challenges that the Chinese government has to face in building up its big businesses. It is concluded that whether Baosteel could emerge as a globally competitive steel firm depends critically upon the effectiveness of both the further reform of the state-dominated corporate governance system and the improvement of the industrial policy enforcement.     

The effects of corporate governance and ownership on the innovation performance of Chinese SMEs

We investigate the degree to which corporate governance and ownership affect the innovation performance of firms in China with a particular focus on privately owned small and medium enterprises. Using the appropriate theoretical frameworks, we derive hypotheses regarding the impact of ownership concentration, board size and composition, and the background of the CEO on innovative activity. These hypotheses are tested using a unique sample of 370 mostly private and relatively small Chinese firms in Zhejiang province, for the period 2004–2006. Using two measures of innovation, invention patents and new product sales, and a variety of estimation methods appropriate to each measure, we find limited evidence that corporate governance affects innovation performance, but the results do depend on the measure of innovation. In general, the results suggest that for this sample, corporate governance and ownership affect innovation activity more strongly when innovation is measured by patenting activity, rather than new product sales. We conclude with a discussion about why this might be.     

Foreign direct investment by Japanese firms and corporate governance: in relation to the monetary policies of China, Korea and Japan

Reflecting upon the lessons from the Asian currency crises, more attention is being paid to the importance of consolidation for the domestic financial and capital markets, as well as international cooperation to avoid disturbing factors from abroad, such as massive inflows of speculative capital. The aim of financial reforms being executed in the East Asian countries, such as Japan, Korea, and China, is to improve the managerial efficiency of the business corporations and financial institutions.Recently, foreign direct investment by Japanese firms in the rest of the East Asia has been recovering. However, the existence of a financial system to realize optimal corporate governance is indispensable for the enhancement of direct investment. Namely, it is necessary to improve corporate profitability, and to distribute the increment of such profits between the host and the investor countries, in order to boost the welfare of the respective citizens, notwithstanding the type of foreign direct investment.     

Options,premium contracts,and the EOE

Summary The article examines the development of options trading in Amsterdam from the seventeenth century to the present time. It shows how the market for traditional options, or premium contracts, was restricted by a number of limitations and how a new form of option — the exchange traded option, and a new options market — the European Options Exchange (E.O.E.), were introduced to overcome these limitations. It examines the first two years of operation of the E.O.E., analyzes some of the problems faced by the E.O.E., and looks at the future development of this new market.     

The impact of corporate governance to the economic value added listed company in BEI 2003-2004

The purpose of this research is to investigate the effect of Corporate Governance （CG） to the performance of the firm measured by Economic Value Added （EVA）. This research uses 64 samples for the year 2003-2004. The CG index is taken from the research of Siagian, Siregar and Rahadian （2006） and the EVA taken from ＂A hundred value creators companies＂ published by SWA Magazines in 2004-2005.
By grouping samples based on its mean, this research finds that samples in high CG index group have higher EVA than samples in low CG index group. The mean equality test shows the significant relation for this evidence.
Using simple and multiple regression method, CG index has positive and significant effect on EVA. This research uses sales growth, leverage, size, and age of the firm as control variables in multiple regression method. Consistent with research hypothesis, all control variables have positive and significant effect on EVA.
This research also investigate the effect of each component of CG index to EVA. ＂Equitable treatment of shareholders＂ and ＂disclosure and transparency＂ have positive and significant effect on EVA, but ＂right of shareholders＂, ＂role of stakeholders＂, and ＂responsibility of the board＂ do not have significant effect to EVA.
The sensitivity analysis is also done to investigate the effect of CG index to the performance of the firm if ROA and ROE were used as proxy of performance. The result shows that CG index has positive and significant effect to those various performance mesurement. Based on its coefficient, CG index is superior in affecting ROE more than EVA and ROA.     

Auditing quality,signaling, and underwriting contracts*

Abstract. This paper examines the interaction between the signaling and agency aspects of a new issue process, The issuing firm can signal its private information by the choice of an auditor. It also employs an investment banker who is better informed about the market demand for the issue and whose actions in selling the new equity securities are unobservable, In this framework the firm's benefits from signaling depend greatly on the time at which its investment banker acquires his private information, If the banker receives a private signal after signing a binding underwriting contract all asymmetric information problems are resolved via a first best agreement that facilitates a separating equilibrium, Under this scenario the issuer's choice of a higher quality auditor induces the banker to exert more effort in selling the issue and to set a higher offer price. The issuer's signaling opportunities are limited when the banker possesses private information prior to contracting. In this case an inefficient underwriting contract is signed in which the offer price is set below the first-best level. While a choice of a higher quality auditor induces a higher offer price and greater proceeds, it also results in a larger informational premium for the investment banker. Considering the incentive effect and the cost of a high quality auditor the issuer may decide not to signal if the latter is too high. Résumé. L'auteur étudie l'interaction entre l'aspect indicatif et l'aspect relatif au mandat d'une nouvelle émission de titres. L'entreprise qui procède à une émission de titres peut livrer certaines indications relatives à l'information privilégiée qu'elle détient par le choix d'un vérificateur. Elle a également recours à un preneur ferme qui est mieux renseigné sur l'accueil que le marché est susceptible de faire à l'émission et dont les agissements dans la vente des nouveaux titres ne sont pas observables. Dans ce cadre de référence, les avantages que l'éntreprise retire des indications qu'elle livre dépendent largement du moment auquel le preneur ferme acquiert son information privilégiée. Si le preneur ferme prend connaissance de l'information privilégiée après avoir signé une convention de prise ferme irrévocable, le fait que l'éntreprise émettrice choisisse un vérificateur de qualité supérieure incite le preneur ferme à déployer davantage d'efforts dans la vente des titres et à fixer un prix d'émission plus élevé par suite de l'équilibre distinctif qui se produit. Les possibilités qu'a l'entreprise émettrice de livrer des indications sont limitées lorsque le preneur ferme possède de l'information privilégiée avant la signature de la convention. Dans ce cas, la convention de prise ferme prévoit un prix d'émission inférieur au meilleur prix possible. Bien que le choix d'un vérificateur de qualité supérieure entraîne un prix d'émission et des recettes plus élevés, il donne lieu également à une prime à l'information plus importante pour le preneur ferme. Compte tenu de l'effet incitatif et du coût d'un vérificateur de qualité supérieure, l'entreprise émettrice peut choisir de ne livrer aucune indication si elle juge ce prix trop élevé.