An emerging market for corporate control? The Mannesmann takeover and German corporate governance

Corporate governance in Germany is often described as a bank-oriented, block-holder or stakeholder model where markets for corporate control have not played a significant role. This case study of the hostile takeover of Mannesmann AG by Vodafone in 2000 demonstrates how systemic changes during the 1990s have eroded past institutional barriers to takeovers. These changes include the strategic reorientation of German banks from the house bank to investment banking, the growing consensus and productivity orientation of employee co-determination and corporate law reform. A significant segment of German corporations are now subjected to a market for corporate control. The implications for the German model are examined in light of both claims by agency theory for the efficiency of takeover markets, as well as the institutional complementarities within Germany's specific variety of capitalism. While the efficiency effects are questionable, the growing pressures for German corporations to achieve the higher stock market valuations of their Anglo-American competitors threaten the distributional compromises underlying the German model. --

A MATHEMATICAL MODEL FOR DEVELOPING ETHNO-BIOLOGICALLY DIVERSE TROPICAL FORESTS

This paper presents a dynamic optimal control model describing the benefits and costs associated with the development of tropical forests rich in plant and animal species and folk knowledge. The model is a framework to assess how various market and institutional incentives might influence both deforestation and the collection of "ethno-biological information."Resource /Energy Economics and Policy,

Voting rights, private benefits, and takeovers

This article analyzes the effects that institutional design of the firm has on the allocation of control over the firm’s assets. The efficient allocation of control is a necessary condition for the optimal allocation of resources. Dynamic efficiency in resource allocation presupposes that control over firms will change hands when a given allocation becomes suboptimal.> Typically, changes in control are brought about through (successful) tender offers or block trades. With regard to takeovers, a firm may have two types of value to consider: First, there is the public value of the firm, which is the market value of the firm’s securities. Second, there may be a private value of the firm. The private value is the benefit an investor enjoys from exercising control over the firm. Private control benefits are most signficant for entrepreneurial start-ups, for established family-owned businesses, and for organizations where personal investors also pursue non-pecuniary goals, such as media groups or professional sports organizations.> Of the legal arrangements identified in the finance literature, the most significant for wealth-maximization in takeovers are the one share–one vote principle, majority rules, and mandatory tender offers. We analyze the implications of these three institutional arrangements in a simple textbook takeover model. The model helps in understanding the optimal design of a legal environment in which the market for corporate control promotes efficient allocation of capital.Corporations - Finance

Climbing to the top? Foreign Direct Investment and property rights

This paper operates at the interface of the literature on the impact of foreign direct investment (FDI) on host countries, and the literature on the determinants of institutional quality. We argue that FDI contributes to economic development by improving institutional quality in the host country and we attempt to test this proposition using a large panel data set of 70 developing countries during the period 1 981 and 2005, and we show that FDI inflows have a positive and highly significant impact on property rights. The result appears to be very robust and is and not affected by model specification, different control variables, or a particular estimation technique. As far as we are aware this is the first paper to empirically test the FDI – property rights linkage.FDI, property rights, institutional quality, institutional change

Remittances and Institutions: Are Remittances a Curse?

This paper addresses the complex and overlooked relationship between the receipt of workers’ remittances and institutional quality in the recipient country. Using a simple model, we show how an increase in remittance inflows can lead to deterioration of institutional quality – specifically, to an increase in the share of funds diverted by the government for its own purposes. In a cross section of 111 countries we empirically verify this proposition and find that a higher ratio of remittances to GDP leads to lower indices of control of corruption, government effectiveness, and rule of law, even after controlling for potential reverse causality.Remittances, Institutions, Corruption

A needs theory of governance

New-institutional economics hypothesizes imperfect rationality, self-seeking preferences, monetary-related needs, and opportunism as fundamental features of human behavior. Consistently, new-institutionalist models of governance highlight the efficiency and transaction costs minimizing features of control rights and governance. Differently, needs theory of governance, as here presented, hypothesizes imperfect rationality, multiple needs, and reciprocity, in which case opportunism is reduced to an exception to individual behavior. Consistently, it presents a theory that links production governance with the wellbeing of those partaking in production. Building on Maslow’s human psychology, the governance model suggested in this paper is aimed at evidencing the self-actualization potential of control rights, organizational structures and practices. The application of Maslow’s theory to the institutional structure of organizations suggests that the deepest organizational layers (control rights and governance) broadly correspond to the most basic needs in Maslow’s theory (survival, security and belonging), while the outer layers (managerial models and employment relations) correspond to the fulfillment of the highest needs (self-esteem and self-actualization). Cooperative firms are used as an illustration of governance solutions consistent with needs theory in human psychology

Do all countries follow the same growth process?

We estimate a finite mixture model in which countries are sorted into groups based on the similarity of the conditional distributions of their growth rates. We strongly reject the hypothesis that all countries follow a common growth process in favor of a model in which there are two classes of countries, each with its own distinct growth process. Group membership does not conform to the usual categories used to control for parameter heterogeneity such as region or income. However, we find strong evidence that one country characteristic that helps to sort countries into different regimes is the quality of institutions, specifically, the degree of law and order. Once institutional features of the economy are controlled for, we find no evidence that geographic characteristics play a role in determining the country groupings.finite mixture models; multiple equilibria; institutional quality

The Trade-Off Between Risk and Control in Corporate Ownership

This paper analyses the risk control trade o$in corporate ownership. It presents a simple model in which large shareholders decide their share depending on their risk aversion, risk-neutral effects attached to rm size and the e$ectiveness of di$erent (external and internal) mechanisms for controlling managers behaviour. Two institutional settings in which the expected benefits from control appear to overcome risk aspects are explored: the USA at the turn of the 20th century and Spain in the 1990's. The empirical evidence seems to support the predictions of the model regarding the relationship between ownership concentration, the characteristics of governance and the size of the firm.Corporate Governance;Disciplinary Mechanisms;Large Shareholders

The Comparison of Institutional Model in Water Management Board - A Case Study of Management on Polder Drainage System in Semarang, Indonesia

Semarang is one of the cities in Indonesia which has a flood problem. Changes in land use, high rainfall intensity and erosion and sedimentation in river channels are the cause of flooding. Flood control has been attempted, such as the optimization of the drainage system. This study aims to obtain an appropriate institutional model for managing the drainage system. Research data obtained through literature and interviews with related parties in drainage management. There are three institutional models of drainage management systems that have been applied in Semarang, namely the government-based institutional model, the community-based institutional model, and the stakeholder-based institutional model. A total of 24 respondents from the elements of the city government, business people and the community were asked to assess the institutional model for drainage system management. The institutional model is analyzed in five aspects, namely technical, institutional, legal, financial, and community participation. Based on the results of the study, the most appropriate institutional model is the stakeholder-based institutional model. This institutional model has the advantage of involving many parties such as the government; communities and entrepreneurs, problems with the drainage system can be dealt with faster; have a legal umbrella that is protected by the government; and sources of funding for operational drainage systems can come from government and non-government