Discipline or disruption?:stakeholder relationships and the effect of takeover threat

While a sizable literature suggests that firms benefit from vulnerability to takeovers because it reduces agency problems, the threat of takeovers can also impose ex ante costs on firms by adversely affecting relationships with important stakeholders, such as major customers. We find that when firms have corporate customers as important stakeholders, an exogenous reduction in the threat of takeovers increases their ability to attract new customers and strengthens their relationships with existing customers, resulting in improvement in operating performance. The positive effect on operating performance is greater for suppliers that are likely to offer unique and durable products to their customers. Our results suggest a beneficial aspect of protection from takeovers when stakeholder relationships are important

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.

Competition Law Enforcement in China: Between Technocracy and Industrial Policy

The article provides a rare reconstruction of a number of early cases decided under the Chinese Anti-Monopoly Law. In particular, the article seeks to go behind the published decisions of the responsible authorities, to reconstruct their decision-making process in particular by identifying the sources of consultation and the arguments that various stakeholders presented to the authorities about what course of action to follow

Legal Background to the Low Profitability of Japanese Enterprises

Japanese enterprises have shown low profitability for quite some time now. This paper presents several hypotheses regarding the influence of Japan’s legal systems on this phenomenon. The laws discussed in this paper cover not only corporate law but also ‘enterprise law’ as a whole, including bankruptcy law, capital markets law and civil litigation law. Besides, I examine not only the ‘laws on the book’ but also ‘legal systems in practice’. As for the research design of this paper, I identify major differences in the enterprise laws among Japan, the United States, and Germany. On the other hand, I assume incentive structures of the parties concerned, such as management, shareholders, creditors, investors and regulators that they play their role on the basis of economic rationality. Then I combine both examinations so as to consider the possible effects caused by the differences in legal systems. Under this approach, this paper discusses the individual law system that may influence the behavior of the enterprises. First I discuss the business reorganization system. Here I point out Japanese enterprises might retain significant cash reserves to avoid the danger of being compelled to file for bankruptcy protection. To the next, I examine the takeover systems and argue that a potential bidder might regard the takeover of a Japanese enterprise as irrationally difficult. This system might bring about an insufficient industry reorganization and weak market pressure on individual enterprises. As for the shareholders’ activities, I suggest that corporate governance disclosure system in Japan might provide negligible pressure on enterprises and investors because of the separation of corporate law and market law. Concerning the enforcement of enterprise law such as lawsuits by shareholders or actions by regulators, I show that the characteristics of enforcement system in Japan might contribute to weak market discipline and risk aversion in the business decisions of directors. I hope this paper stimulates further research and widespread constructive discussion on this issue

A Legal and Economic Assessment of European Takeover Regulation. CEPS Paperbacks. December 2012

Takeovers are one-off events, altering control and strategy within an organisation. But the chances of becoming the target of a bid, even where remote, daily influence corporate decision-making. Takeover rules are therefore central to company law and the balance of power among managers, shareholders and stakeholders alike. This study analyses the corporate governance drivers underpinning takeover bid regulations and assesses the implementation of the EU Directive on takeover bids and compares it with the legal framework of nine other major jurisdictions, including the US. It finds that similar rules have different effects depending on company-level and country-level characteristics and considers the use of modular legislation and optional provisions to cater for them

From a shareholder to stakeholder orientation:Evidence from the analyses of CEO dismissal in large U.S. firms

Not applicableOthersSocial Sciences and Humanities Research Council of Canada, Grant/Award Number: 435-2013-1409Published24 month