Company Financial and Governance Mechanisms: A Comparison of the United States, Japan, and Europe

Author: Donald H. Chu, Editor-in-Chief / Yang Qijing et al
Publisher:
Publish Date: 2005-05-01
Features: In the past decade, the debate over the relative efficiency of different national economic systems has become increasingly central. In today's developed economies, there are two fundamental corporate finance and governance mechanisms. One is the "market-based" Anglo-American model, characterized by highly dispersed ownership and a vibrant corporate control (or takeover) market. The other is the "relationship-based" system, exemplified by Japan and Germany, characterized by the presence of main banks and cross-shareholdings among companies (as well as a notable lack of a takeover market). So, in an increasingly globalized world, which of these two mechanisms will ultimately prevail? Or will the two systems coexist by absorbing certain aspects of each other? Now, this story is told by economists and management experts, and it is a very complex one. Corporate strategist Michael Porter claims that the U.S. mechanism for allocating capital, both within and between companies, shows a trend of failure, because both capital markets and internal pressures force U.S. companies to underinvest in intangible assets related to their capabilities, which significantly contribute to corporate competence. Economist Michael Jensen insists that the most daunting challenge facing the U.S. economy—and indeed, all industrialized economies—is overinvestment. In the U.S., this issue was unleashed through leveraged restructuring in the 1980s. Nobel laureate in Economics Merton Miller simultaneously addressed both of these viewpoints: Porter's concern about U.S. underinvestment and Jensen's pessimistic view of the U.S. control system that upholds the "shareholder value principle." Corporate strategist C.K. Prahalad was not convinced by Miller and Jensen and even challenged the notion that the primary responsibility of U.S. companies is to "maximize shareholder value." In the debate over the economic consequences of the U.S. shareholder-centric view versus Japan's lack thereof, Prahalad engaged in a fierce argument with shareholder value advocate Bennett Stewart. This book comprehensively presents the debate over whether U.S. corporate finance and governance mechanisms are "short-sighted," while also providing an in-depth analysis of Japanese (and German) corporate finance and governance mechanisms, European mechanisms, and South African mechanisms. It also includes thought-provoking comparative studies. The book nearly encompasses all major schools of thought in the field and presents a vibrant picture of mainstream and non-mainstream perspectives, offering readers a multi-faceted and comprehensive understanding of corporate finance and governance. The book also strongly emphasizes the integration of theoretical analysis with empirical testing, interspersing case studies throughout. It is no exaggeration to say that few books can blend economics, finance, and management as seamlessly as this one. Whether for researchers, corporate managers, MBA students, or participants in advanced management training programs, reading this book will be highly beneficial. Authored by academic authorities and renowned management experts in the field of corporate finance and governance, this book represents the highest level of research in the field. The editors have also specially included discussions from two renowned seminars on corporate finance and governance, where various viewpoints clash and moments of brilliance spark frequently, offering great enlightenment.