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The Small Worlds of Corporate Governance

The Small Worlds of Corporate Governance

edited by Bruce Kogut
Copyright Date: 2012
Published by: MIT Press
Pages: 408
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  • Book Info
    The Small Worlds of Corporate Governance
    Book Description:

    The financial crisis of 2008 laid bare the hidden network of relationships in corporate governance: who owes what to whom, who will stand by whom in times of crisis, what governs the provision of credit when no one seems to have credit. This book maps the influence of these types of economic and social networks--communities of agents (people or firms) and the ties among them--on corporate behavior and governance. The empirically rich studies in the book are largely concerned with mechanisms for the emergence of governance networks rather than with what determines the best outcomes. The chapters identify "structural breaks"--privatization, for example, or globalization--and assess why powerful actors across countries behaved similarly or differently in terms of network properties and corporate governance. The chapters examine, among other topics, the surprisingly heterogeneous network structures that contradict the common belief in a single Anglo-Saxon model; the variation in network trajectories among the formerly communist countries including China; signs of convergence in response to the common structural breaks in Europe; the growing structural power of women due to gains in gender diversity on corporate governance in Scandinavia; the "small world" of merger and acquisition activity in Germany and the United States; the properties of a global and transnational governance network; and application of agent-based models to understanding the emergence of governance.

    eISBN: 978-0-262-30157-2
    Subjects: Finance, Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Contributors and Participants
    (pp. ix-x)
  4. Acknowledgments
    (pp. xi-xiv)
  5. 1 The Small World of Corporate Governance: An Introduction
    (pp. 1-52)
    Bruce Kogut

    The financial crisis of 2008 in the United States laid bare the hidden network of relationships in corporate governance regarding who owes what to whom, who will stand by whom in times of crisis, and what the obligations and rules are for the provision of credit when no one seems to have credit. The very nature of systemic risk depends on these relationships. Many learned that the moment of failure is not when credit runs dry, but when partners and friends turn out to be arm’s-length transactors after all and refuse to lend. For others, when banks honored their implicit...

  6. 2 Is There an Anglo-Saxon Model?
    (pp. 53-76)
    Martin J. Conyon and Andrew Shipilov

    Corporate governance refers to the ownership and control of organizations (Fama & Jensen, 1983b; Tirole, 2001, 2006). In a now classic statement, Shleifer and Vishny (1997) define corporate governance as “the ways in which the suppliers of finance to corporations assure themselves of getting a return on their investment.” The central corporate governance problem is that self-interested managers may pursue their own goals at the expense of owners’ welfare. The field of corporate governance investigates the variety of available mechanisms to align owner (shareholder) interests with those of decision makers (the CEO and senior managers). However, the literature on the social...

  7. 3 The Small Worlds of Business Groups: Liberalization and Network Dynamics
    (pp. 77-116)
    Jon Brookfield, Sea-Jin Chang, Israel Drori, Shmuel Ellis, Sérgio G. Lazzarini, Jordan I. Siegel and Juan Pablo von Bernath Bardina

    Using comparative data from six major emerging economies—Brazil, Chile, Israel, Mexico, South Korea, and Taiwan—we examine how ownership networks in those societies responded to a roughly similar “structural break” of economic liberalization during the 1990s involving both increased openness and/or reduced direct state control (e.g., privatization programs). We are particularly interested in assessing how these changes affected the typical patterns of organization found in emerging economies, notably concentrated ownership and the presence of “business groups” involving clusters of firms linked by common controlling owners. While standard economic rationales would suggest that openness and privatization would lead to more...

  8. 4 Ownership Networks and New Institutional Forms in the Transition from Communism to Capitalism
    (pp. 117-150)
    Doug Guthrie, Ilya Okhmatovskiy, Roger Schoenman and Zhixing Xiao

    The last decade has seen an explosion of research analyzing the network connections among organizations. Kogut and Walker (2001) enter this growing stream of research by pointing to one of the important puzzles of globalization: globalization is experienced in a national context—it is dependent on national and local institutions in which firms are embedded—yet similar patterns of ownership across many advanced industrial economies belie this institutional variation. Kogut and Walker highlight a number of institutions that are important in undergirding the structure of networks, including the laws that govern markets, fiscal and trade policy, and the state. Certain...

  9. 5 Structural Breaks and Governance Networks in Western Europe
    (pp. 151-182)
    Fabrizio Ferraro, Gerhard Schnyder, Eelke M. Heemskerk, Raffaele Corrado and Nathalie Del Vecchio

    Europe experienced a considerable “structural break” during the 1990s due to extensive liberalization policies, like those found in other regions around the globe. Indeed, European countries were involved in a unique project of harmonization and coordination of their policies within the framework of the European Union. In the late 1980s, pathbreaking European Directives paved the way for a common European market, first and foremost geared toward financial markets. The Single European Act, effective as of 1987, and the subsequent European Monetary Union led to a process of financial deregulation and to a wave of cross-border takeovers and acquisitions within the...

  10. 6 Testing the ʺOld Boysʹ Networkʺ: Diversity and Board Interlocks in Scandinavia
    (pp. 183-202)
    Christofer Edling, Bersant Hobdari, Trond Randøy, Anna Stafsudd and Steen Thomsen

    As in most countries around the world, company boards in Scandinavia (Denmark, Norway, and Sweden) tend to be composed of demographically similar individuals: men between the age of 50 and 60, citizens of the country where the company is headquartered, and with an education in business, economics, law, or engineering. They tend to have the same background as the managers they are supposed to monitor, live in the same neighborhood, and have similar political views. This social structure is known as anold boys’ network—implying a social elite that outsiders cannot penetrate. It goes almost without saying that such...

  11. 7 Governance Networks, Small Worlds, and Acquisitions in Germany and the United States, 2000–2005
    (pp. 203-236)
    Gerald F. Davis, Gordon Walker and Bruce Kogut

    The previous chapters have used networks as doors into the analysis of the comparative macroinstitutional environment of countries. As discussed in the introduction, a different analysis seeks to inquire how macrogovernance networks influence the microdecisions of firms. (In chapter 8, we explore the inverse, namely, how microrules generate macrostructure.) Ideally, a multilevel analysis applied to many countries would estimate directly the effect of the macronetwork on the choices of managers. We take an intermediate position in this chapter by estimating the effects of the network nodal characteristics and firm financial attributes on the decision to merge in Germany and the...

  12. 8 Generating Rules and the Social Science of Governance
    (pp. 237-258)
    Bruce Kogut, Mariano Belinky, Jordi Colomer and Malika Hamadi

    The chapters in this book have compared country networks in order to inform an institutional analysis of corporate governance. This chapter approaches the analysis of governance from the perspective of the simulation methodologies of complex adaptive systems. Until 10 years ago, the dominant approach to the study of networks in management and social sciences had focused on static empirical graphs that related particular decisions, such as adoption of managerial practices, to ties among firms or other organizational entities. At times, particular network attributes were proposed as especially meaningful, such as centrality, closure, structural holes, or blocks. Although a few papers...

  13. 9 Is There a Global Small World of Owners and Directors?
    (pp. 259-300)
    Bruce Kogut and Jordi Colomer

    Transnational business ties did not start with the globalization of the late 20th century. Long before written records were kept, traders met at geographic boundaries to deposit goods that were then swapped for other goods, a practice described by Herodotus among others. The Roman Empire was coterminous with extensive trade, which included the use of agents located across borders. Factories were built throughout the Empire, using standardized methods of production and design, such as the manufacturing of earthenware jugs for wine near Hadrian’s Wall. InCivilization and Capitalism, Fernand Braudel’s (1979) account of the twilight of the Middle Ages is...

  14. 10 Epilogue: The Generative Analytics of Corporate Governance
    (pp. 301-312)
    Bruce Kogut

    This book has had two major ambitions. The first was to enter a common methodological door of small worlds to understand how governance works across countries, as revealed in their responses to structural breaks (a methodology we have called “comparing the comparative statics”). The second was to initiate an alternative methodological approach to comparative studies relying on the identification of the microrules that grow macrostructures. From this alternative effort, explanation gravitates toward such questions as “Can we grow Korea”? or “How far away is Korea from the United States in terms of structural distance”? The pithy phrasing offered by Macy...

  15. 11 Appendix 1: Primer on Social Networks and Small-World Measures
    (pp. 313-336)
    Mariano Belinky, Jordi Colomer, Bruce Kogut and Pietro Urso
  16. 12 Appendix 2: Name-Matching Algorithms
    (pp. 337-342)
    Jordi Colomer
  17. References
    (pp. 343-362)
  18. Index
    (pp. 363-388)