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External Corporate Governance Mechanism

Author: ZhangYiZuo¡¡LiaoYongWei From: www.yourpaper.net Posted: 2009-10-06 14:11:50 Read:
[Abstract] External Corporate Governance oversight from outside the company, that is, from the supervision of the corporate control market, and its purpose is to prevent managers from abusing its powers in the performance of their duties. This paper summarizes the existing empirical studies found External Corporate Governance allows the target company's shareholders to benefit from, but this way the company governance effect subject to different countries, dispersed ownership status. China's current reform of the split share structure has been completed. But its effect activate the company external governance mechanism can not expect too much, because the "dominance" of the pattern may not be able to be broken. Gradual and orderly diversification of investment channels, might be able to break the "dominance" phenomenon viable solution.
[Keywords] corporate governance; external mechanism; empirical research


China now has to carry out more research on corporate governance, despite the title of the scholars are marked with the words of "corporate governance", but their object of study, or is concerned about the range, generally just for internal corporate governance this area, and seldom talked External Corporate Governance, which makes most people thinking Center for the concept of corporate governance, often internal governance. And even research on the company's external governance, sometimes not necessarily with the concept of the "External Corporate Governance", more common, scholars punitive acquisition "(Diseiplinary takeover) and the corporate control market "(The market br corporate control) and other words. What is the External Corporate Governance (Extemal corporate governance) it? Date, also does not have a unified definition Broadly speaking, the External Corporate Governance oversight from outside the company, its purpose is to prevent business managers in performing their duties when the abuse of their rights. For a long time, the External Corporate Governance has been a lot of channels. Some external governance, more emphasis on external oversight (such as: the administrative supervision of the public authority), some more emphasis on market supervision. The so-called market supervision, the so-called "corporate control market supervision, the supervision of the" market "the performance of the business managers. China is seen most of External Corporate Governance, generally focused on the supervision of the market, especially the supervision of the securities market. Therefore, most of the external governance research, the following will focus on the introduction and analysis of the corporate control market governance mechanism "in practice.
Internal corporate governance mechanisms from the company's internal supervision, which can generally be achieved through the following two means: (1) through the reconstruction of the rights and obligations of the company's internal body relationship, requires business managers enjoy decision-making powers at the same time, also shoulder diligence obligations and fiduciary duties, and in contravention to assume corresponding responsibility; (2) through the main independent business managers, added to the company's management structure, to participate in the democratic management, decision-making and oversight. For example: Let workers have more opportunity to participate in the Board of Directors and the Supervisory Board, the Board's decision-making at the same time reflect the interests of the shareholders, and also take into account the interests of workers. Internal corporate governance mechanisms in terms of oversight managers play a pivotal role in this mechanism, however, there are still many inadequacies. For example, most of the independent director system in our country is a mere formality only independent directors in terms of time or on a salary sources are very difficult to seriously fulfill its responsibilities to protect minority shareholders. In view of this, the external governance mechanism of the development of the company, will be able to some extent to make up for the lack of internal mechanisms.
Of Maryse - Manning assumptions (Marris Manne Hypothesis) is outside the classic corporate governance theory. Under this assumption, even if internal governance mechanisms failed to play a role, business managers will not be too much abuse of their rights in the execution of their duties, because the market of corporate control, will govern these incompetent managers. However, this is purely theoretical assumptions practice the situation may be more complex.

Two, the empirical analysis of the effect of external governance mechanisms

Many scholars have carried a lot of empirical analysis, I hope to be able to find answers to the following two questions: (1) the acquisition is in the end is an effective mechanism, whether shareholders can replace the direct supervision of the company's external governance mechanisms? (2) merger and acquisitions in the end what effect? ??
While the corporate control market governance business managers through a variety of ways, but generally which reflected in the hostile takeover. Because in a hostile takeover, incompetent directors be generally acquisition resist as possible to save their own positions in the company. As the incompetent directors usually can be seen, when the successful hostile takeover, the majority of them will be replaced. Hostile takeover allow outside investors the opportunity to obtain control of the company with the price lower than the market price, so the hostile takeover is generally considered to be the directors to supervise and punish the most powerful mechanism. Therefore, this article will focus on the analysis of the company's acquisition of empirical research.
In order to analyze the hostile takeover in the end what academics now commonly used two research methods: the first method is the event study methodology (Event studies), announced after the stock of both companies by studying the acquisition changes in prices, in order to find the effect produced by the company's acquisition; the second study method is "after the accounting data research method" (Ex poststudies), that is to compare the performance of the company after the merger, to speculate that the Company acquired company performance impact. If the Company acquired really an effective means to correct incompetent managers, the combined company performance should be better than the proposed acquisition of the company prior to the merger and the overall performance of the acquired company (target company).

2 "event study" findings
Gugler summarizes the research results of the event study methodology, and proposed research report pointed out: the shareholders of the target company can be obtained from the Company acquired an average positive return, but the proposed acquisition of the company's shareholders, the company acquired almost can not bring them any benefits.
Jarrell and Poulsen study the successful acquisition of 663 events in the United States, and the shareholders of the target company in the 1960s, 1970s and 1980s, respectively, you can get 19%, 35% and 39% rate of return. The British study also showed that the rate of return for the shareholders of the target company can get quite high.
Higson and Elliott found that the proposed acquisition of the company's shareholders in the UK, and not any non-normal returns, even in the middle period of the study year, 24 months average rate of return negative phenomenon. At the same time, Bradley, Desai and Kim's research report similar results. They studied in the United States in different periods of the company after the acquisition, the proposed acquisition of the company's shareholder returns at different times to walk in between positive and negative. However, with Bradley, Desai and Kim found, a new research report pointed out that after the event of the acquisition of U.S. companies, hostile takeovers in 1983-1987, give the proposed acquisition of the company's shareholders to bring 12.8% 14 month average positive return. Although more than Anglo-American empirical research has not been consistent with the study results, but you can come to a conclusion, the shareholders of the acquired company may be able to get a positive return in a hostile takeover, but this positive income does not necessarily guarantee even in some period may suffer.

3 "after the accounting data research method" results
As mentioned above, the Takeovers really an effective corrective incompetent business managers the means, then the combined company performance should be better than the proposed acquisition of the company before the merger, and the overall performance of the target company. In other words, through the acquisition of means, if the combined company performance, the company failed to exceed the pre-merger, whether the acquisition debatable how effective this means for enhancing corporate governance. The empirical evidence suggests that the function of a hostile takeover, it can reduce excess capacity through corporate restructuring. For example: between 1977-1988. About 37 U.S. tire factories closed down, and employment simultaneously reduced by about 40%. The reason for the hostile takeover prompted tire companies through the restructuring of re-adjustment caused by too much manpower. Therefore, after the acquisition of the company generally enjoy higher economies of scale, and from lower operating costs.
Gugler reviewed multiple use "after the accounting data of the study of the law, and that, despite some scholars capable of administering the company's acquisition of the underperforming business managers efficacy questioned, but the available evidence suggests that the company acquired able Give a positive effect. For example: many of the hostile takeover of the United States are operating difficulties the company or industry initiated.
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