The role of informal institutions in corporate governance: Brazil,Russia, India,and China compared

This paper argues that the role of informal institutions as well as formal ones is central to understanding the functioning of corporate governance. We focus on the four largest emerging economies: Brazil, Russia, India, and China—commonly referred to as the BRIC countries. Our analysis is based on the Helmke and Levitsky framework of informal institutions and focuses on two related aspects of corporate governance: firm ownership structures and property rights; and the relationship between firms and external investors. We argue that for China and some states of India, “substitutive” informal institutions, whereby informal institutions substitute for and replace ineffective formal institutions, are critical in creating corporate governance leading to enhanced domestic and foreign investment. In contrast, Russia is characterized by “competing” informal institutions whereby various informal mechanisms of corporate governance associated with corruption and clientelism undermine the functioning of reasonably well set-out formal institutions relating to shareholder rights and relations with investors. Finally Brazil is characterized by “accommodating” informal institutions which get around the effectively enforced but restrictive formal institutions and reconcile varying objectives that are held between actors in formal and informal institutions.     

Which institutions encourage entrepreneurial growth aspirations?

We develop entrepreneurship and institutional theory to explain entrepreneurial growth aspirations across individuals and institutional contexts. Our framework generates hypotheses at the national level about the negative impact of higher levels of corruption, weaker property rights and greater government activity on entrepreneurs' aspirations to increase employment. We further explore whether individual's social networks compensate for weaknesses in national institutions. We use the Global Entrepreneurship Monitor surveys in 42 countries for 2001–2006, applying a multilevel estimation framework to test our ideas. We find that the relationship between growth aspiring entrepreneurs and institutions is complex; they benefit simultaneously from strong government (in the sense of property rights enforcement), and smaller government, but are constrained by corruption. Social networks mediate some but not all institutional deficiencies.     

Privatisation in the Transitional Economies of Central and Eastern Europe: Issues and Progress

Privatisation is pivotal to economic progress in the transitional economies of Central and Eastern Europe. But given the limited stock of domestic savings, speedy changes in ownership most probably rely on voucher schemes under which shares are distributed to the population as a whole. The problem is how to ensure that corporate governance is effective, and that restructuring occurs, when privatisation takes this form.     

Privatisation Acquisition and Direct Foreign Investment: Who Buys State-Owned Enterprises?

MOCT-MOST: Economic Policy in Transitional Economies -     

Debt financing,soft budget constraints,and government ownershipEvidence from China1

Debt financing is expected to improve the quality of corporate governance, but we find, using a large sample of public listed companies (PLCs) from China, that an increase in bank loans increases the size of managerial perks and free cash flows and decreases corporate efficiency. We find that bank lending facilitates managerial exploitation of corporate wealth in government‐controlled firms, but constrains managerial agency costs in firms controlled by private owners. We argue that the failure of corporate governance may derive from the shared government ownership of lenders and borrowers, which nurtures soft budget constraints.     

Employment and wage behaviour of industrial enterprises in transition economies: The cases of Poland and Czechoslovakia1

In this paper we use two very large panel datasets from Poland, 1988-90 and Czechoslovakia, 1990-1992 to explore the dynamics of employment and wage determination at the enterprise level in the early years of transition. The study is intended to assist in building a coherent picture of microeconomic adjustment in transition, a field which was not sufficiently explored in the early years of reform. We find that Polish firms were already to some extent responsive to market conditions pre-reform, notably to demand in determining employment. Czechoslovak firms, however, were largely unresponsive to such pressures in 1989-90. The elasticities rose significantly in both countries in the early years of reform, especially in Czechoslovakia which quickly attained initial Polish patterns of adjustment. Firms became much more responsive to sales and cost pressures in adjusting employment and to their own productivity in setting pay. Ownership effects in these early years were, however, much more modest, with state-owned firms adjusting employment more than their private counterparts, perhaps because over-manning was more serious in that sector.     

Profit-Sharing in OECD Countries: a Review and Some Evidence

This article starts by describing the extent of profit-sharing schemes in OECD countries. It suggests that firms have increasingly introduced profit-sharing schemes not only because of the tax breaks they involve, but also because of accumulating information on the link between profit-sharing and productivity. It concludes with a summary of new research among UK manufacturing companies, which shows a productivity improvement of about 6% in cases where profit-sharing bonuses were of order 5–10% of market wages.