Universal banks and relationships with firms : [Version Mai 2003]

Some of the most widely expressed myths about the German financial system are concerned with the close ties and intensive interaction between banks and firms, often described as Hausbank relationships. Links between banks and firms include direct shareholdings, board representation, and proxy voting and are particularly significant for corporate governance. Allegedly, these relationships promote investment and improve the performance of firms. Furthermore, German universal banks are believed to play a special role as large and informed monitoring investors (shareholders). However, for the very same reasons, German universal banks are frequently accused of abusing their influence on firms by exploiting rents and sustaining the entrenchment of firms against efficient transfers of firm control. In this paper, we review recent empirical evidence regarding the special role of banks for the corporate governance of German firms. We differentiate between large exchangelisted firms and small and medium sized companies throughout. With respect to the role of banks as monitoring investors, the evidence does not unanimously support a special role of banks for large firms. Only one study finds that banks´ control of management goes beyond what nonbank shareholders achieve. Proxyvoting rights apparently do not provide a significant means for banks to exert management control. Most of the recent evidence regarding small firms suggests that a Hausbank relationship can indeed be beneficial. Hausbanks are more willing to sustain financing when borrower quality deteriorates, and they invest more often than arm´s length banks in workouts if borrowers face financial distress

The economic impact of merger control legislation

Based on a unique dataset of legislative changes in industrial countries, we identify events that strengthen the competition control of mergers and acquisitions, analyze their impact on banks and non-financial firms and explain the different reactions observed with specific regulatory characteristics of the banking sector. Covering nineteen countries for the period 1987 to 2004, we find that more competition-oriented merger control increases the stock prices of banks and decreases the stock prices of non-financial firms. Bank targets become more profitable and larger, while those of non-financial firms remain mostly unaffected. A major determinant of the positive bank returns is the degree of opaqueness that characterizes the institutional setup for supervisory bank merger reviews. The legal design of the supervisory control of bank mergers may therefore have important implications for real activity

Governance of stakeholder relationships: The German and Dutch experience

Countries' governance institutions to a varying degree support stakeholders to invest in relationship-specific assets. The function of governance institutions is to strengthen the commitment of parties to keep to an initial agreement. Thus, international differences in governance institutions affect relationship-specific investments. Two stylized models of stakeholder relationships can be distinguished, the Anglo-American model and the German model. Market orientation and competition characterize the Anglo-American model. Long-term relationships and cooperation are distinctive features of the German model. Strong elements of the Anglo-American model are fast reallocation of financial, physical and human capital through the market. Short-run flexibility facilitates a shift of resources towards innovative emerging technologies, in particular towards start-up firms. The German model is strong with respect to the development of long-term commitment, investments in relationship-specific physical and human capital, and cooperation between companies. This model promotes technological progress and re-allocation of resources within established enterprises. The position of Dutch corporate governance institutions, which govern the relationships between management and financiers, does not stand out as favourable compared to both the German and the Anglo-American models of corporate governance. In the Netherlands, share ownership is dispersed, so that monitoring by block shareholders is largely absent. In this respect the situation in the Netherlands is comparable to that in the United States and the United Kingdom. However, in contrast to the Anglo-American model the market for corporate control is virtually absent in the Netherlands. Cooption of members of the supervisory board and extensive use of juridical anti-takeover defence mechanisms substantially restrict the influence of shareholders on management. Therefore, Dutch corporate governance institutions neither strongly encourage investments in relationship-specific assets, nor strongly enhance flexible reallocation of capital or risk-sharing finance. Recent policy changes will probably lead to a moderate shift to the German model. Dutch work governance institutions, which concern the governance of relationships between management and employees, more closely resemble those in Germany. This implies that worker influence enhances the performance within large established firms, but that external allocation through the labour market is less efficient compared to the functioning of markets in the Anglo-American model. Future policy changes that strengthen Dutch worker influence will be beneficial for performance in established firms, and are in accordance with the gradual shift towards German governance structures.

Research and Applications of the Processes of Performance Appraisal: A Bibliography of Recent Literature, 1981-1989

[Excerpt] There have been several recent reviews of different subtopics within the general performance appraisal literature. The reader of these reviews will find, however, that the accompanying citations may be of limited utility for one or more reasons. For example, the reference sections of these reviews are usually composed of citations which support a specific theory or practical approach to the evaluation of human performance. Consequently, the citation lists for these reviews are, as they must be, highly selective and do not include works that may have only a peripheral relationship to a given reviewer\u27s target concerns. Another problem is that the citations are out of date. That is, review articles frequently contain many citations that are fifteen or more years old. The generation of new studies and knowledge in this field occurs very rapidly. This creates a need for additional reference information solely devoted to identifying the wealth of new research, ideas, and writing that is changing the field

Levels of abstraction in human supervisory control teams

This paper aims to report a study into the levels of abstraction hierarchy (LOAH) in two energy distribution teams. The original proposition for the LOAH was that it depicted five levels of system representation, working from functional purpose through to physical form to determine causes of a malfunction, or from physical form to functional purpose to determine the purpose of system function. The LOAH has been widely used throughout human supervisory control research to explain individual behaviour. The research seeks to focus on the application the LOAH to human supervisory control teams in semi-automated “intelligent” systems

The new Basel accord and developing countries: problems and alternatives

The new Basel Accord framework relies on markets and supervisors to discipline banks. Yet both markets and supervisors fail, and more so in developing countries than in high-income countries. Therefore, the new Accord is not, as its designers claim, suitable for wide application. Nevertheless, developing country policymakers have little choice but to implement it in part or in whole. Hence there are problems of governance in international regulation. I offer seven general principles for the design of a prudential regime more robust to government and market failure. Four alternative capital regimes are evaluated in the light of these principles. Simpler and harsher regimes are likely to achieve greater safety with a given level of resources

Employee Compensation and Advanced Manufacturing Technology

[Excerpt] The globalization of product markets has intensified competition in an increasingly wide array of industries, including automobiles, consumer electronics,steel, and computer chips to name just a few. In manufacturing as a whole during the last thirty years, productivity growth in the U.S. has lagged significantly behind that of Japan, Germany, Sweden, and many other industrialized countries. For example, between 1960 and 1985, the annual growth in manufacturing productivity (output per hour) was 2.7 percent in the U.S. compared with 8.0 percent in Japan. Unless this trend can be turned around, U.S. companies will find it increasingly difficult to compete in the world market

Subject: Human Resource Management

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