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

Author: A Comparison of Japan and Europe
Publisher:
Publish Date: 2005-05-30
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 relatively active corporate control (or takeover) market. The other is the "relationship-based" system represented by Japan and Germany, characterized by the presence of main banks and cross-shareholdings among companies (as well as a noticeable lack of a takeover market). So, in an increasingly globalized world, which of these two mechanisms will ultimately prevail? Or will the two systems continue to 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 greatly 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 leverage 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 further challenged the notion that the responsibility of U.S. companies is to "maximize shareholder value." In the debate over the economic consequences of the U.S. shareholder supremacy versus Japan's lack of this concept, Prahalad engaged in a fierce argument with shareholder value advocate Bennett Stewart. This book collects 28 essays, providing readers with a comprehensive overview of the debate over whether the U.S. corporate finance and governance mechanisms are "short-sighted," while also deeply analyzing the mechanisms of Japan (and Germany), Europe, and South Africa, along with thought-provoking comparative studies.