IDEAS home Printed from https://ideas.repec.org/a/fip/fedlrv/y1998ijulp19-42nv.80no.4.html
   My bibliography  Save this article

Universal banking, control rights, and corporate finance in Germany

Author

Listed:
  • William R. Emmons
  • Frank A. Schmid

Abstract

This article describes the most important corporate governance practices in contemporary Germany. These practices include a prominent role for universal banks, other large financial and non-financial firms, and employees through a system known as codetermination. While some similarities exist, many features of corporate governance in Germany differ greatly from those found in the United States. This article provides historical background and a review of the existing empirical evidence on these topics.

Suggested Citation

  • William R. Emmons & Frank A. Schmid, 1998. "Universal banking, control rights, and corporate finance in Germany," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 19-42.
    • Handle: RePEc:fip:fedlrv:y:1998:i:jul:p:19-42:n:v.80no.4
    as

    Download full text from publisher

    File URL: https://files.stlouisfed.org/files/htdocs/publications/review/98/07/9807be.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kaplan, Steven N, 1994. "Top Executives, Turnover, and Firm Performance in Germany," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 10(1), pages 142-159, April.
    2. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
    3. Michael C. Jensen, 2010. "The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 43-58, January.
    4. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 33-68, National Bureau of Economic Research, Inc.
    5. Holderness, Clifford G. & Sheehan, Dennis P., 1988. "The role of majority shareholders in publicly held corporations : An exploratory analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 317-346, January.
    6. Grossman, Sanford J. & Hart, Oliver D., 1988. "One share-one vote and the market for corporate control," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 175-202, January.
    7. Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 473-494.
    8. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    9. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
    10. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-475, June.
    11. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    12. Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 647-663.
    13. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73(2), pages 110-110.
    14. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1990. "The role of banks in reducing the costs of financial distress in Japan," Journal of Financial Economics, Elsevier, vol. 27(1), pages 67-88, September.
    15. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-132, March.
    16. Jensen, Michael C & Murphy, Kevin J, 1990. "Performance Pay and Top-Management Incentives," Journal of Political Economy, University of Chicago Press, vol. 98(2), pages 225-264, April.
    17. Henry G. Manne, 1965. "Mergers and the Market for Corporate Control," Journal of Political Economy, University of Chicago Press, vol. 73(4), pages 351-351.
    18. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
    19. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hsin-Yu Liang & Alan K. Reichert & Larry D. Wall, 2008. "The final frontier : the integration of banking and commerce. Part 1, the likely outcome of eliminating the barrier," Economic Review, Federal Reserve Bank of Atlanta, vol. 93(1).
    2. Hans Degryse & Steven Ongena, 2001. "Bank Relationships and Firm Profitability," Financial Management, Financial Management Association, vol. 30(1), Spring.
    3. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    4. Edwards, Jeremy S.S. & Weichenrieder, Alfons J., 2009. "Control rights, pyramids, and the measurement of ownership concentration," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 489-508, October.
    5. Robert S. Chirinko & Hans van Ees & Harry Garretsen & Elmer Sterken, 1999. "Firm Performance, Financial Institutions and Corporate Governance in the Netherlands," CESifo Working Paper Series 210, CESifo.
    6. Andreani, Ettore, 2003. "Corporate Control and the Financial System in Germany: Recent Changes in the Role of Banks," Thuenen-Series of Applied Economic Theory 37, University of Rostock, Institute of Economics.
    7. Frank A. Schmid & Mark Wahrenburg, 2002. "Mergers and acquisitions in Germany," Working Papers 2002-027, Federal Reserve Bank of St. Louis.
    8. Gary Gorton & Frank Schmid, 2000. "Class Struggle Inside the Firm: A Study of German Codetermination," NBER Working Papers 7945, National Bureau of Economic Research, Inc.
    9. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
    10. Becht, Marco & Boehmer, Ekkehart, 2003. "Voting control in German corporations," International Review of Law and Economics, Elsevier, vol. 23(1), pages 1-29, March.
    11. Schmidt, Reinhard H., 2003. "Corporate Governance in Germany: An Economic Perspective," CFS Working Paper Series 2003/36, Center for Financial Studies (CFS).
    12. Din, Shahab-u- & Javid, Attiya Yasmin, 2011. "Impact of managerial ownership on financial policies and the firm’s performance: evidence Pakistani manufacturing firms," MPRA Paper 37560, University Library of Munich, Germany.
    13. Marc Goergen & Miguel Manjon & Luc Renneboog, 2008. "Is the German system of corporate governance converging towards the Anglo-American model?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(1), pages 37-71, March.
    14. Ann†Kristin Achleitner & André Betzer & Marc Goergen & Bastian Hinterramskogler, 2013. "Private Equity Acquisitions of Continental European Firms: the Impact of Ownership and Control on the Likelihood of Being Taken Private," European Financial Management, European Financial Management Association, vol. 19(1), pages 72-107, January.
    15. Istemi Demirag & Mehmet Serter, 2003. "Ownership Patterns and Control in Turkish Listed Companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 11(1), pages 40-51, January.
    16. Elsas, Ralf & Krahnen, Jan Pieter, 2003. "Universal Banks and Relationships with Firms," CFS Working Paper Series 2003/20, Center for Financial Studies (CFS).
    17. repec:dgr:rugsom:99e40 is not listed on IDEAS
    18. Franks, Julian & Mayer, Colin, 2001. "Ownership and Control of German Corporations," The Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 943-977.
    19. Hafiz Mustansar Javaid & Snober Javid, 2017. "Determining Agency Theory Framework through Financial Leverage & Insider Ownership," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(3), pages 21-28, March.
    20. Elston, Julie Ann & Goldberg, Lawrence G., 2003. "Executive compensation and agency costs in Germany," Journal of Banking & Finance, Elsevier, vol. 27(7), pages 1391-1410, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. William R. Emmons & Frank A. Schmid, 1998. "Universal banking, allocation of control rights, and corporate finance in Germany," Working Papers 1998-001, Federal Reserve Bank of St. Louis.
    2. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    3. Goergen, Marc & Manjon, Miguel C. & Renneboog, Luc, 2008. "Recent developments in German corporate governance," International Review of Law and Economics, Elsevier, vol. 28(3), pages 175-193, September.
    4. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    5. Allen, Franklin & Gale, Douglas, 1995. "A welfare comparison of intermediaries and financial markets in Germany and the US," European Economic Review, Elsevier, vol. 39(2), pages 179-209, February.
    6. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    7. Mike Burkart & Samuel Lee, 2008. "One Share - One Vote: the Theory," Review of Finance, European Finance Association, vol. 12(1), pages 1-49.
    8. Hellwig, Martin, 1998. "On the economics and politics of corporate finance and corporate control," Papers 98-43, Sonderforschungsbreich 504.
    9. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    10. Andreani, Ettore & Neuberger, Doris, 2004. "Relationship finance by banks and non-bank institutional investors: A review within the theory of the firm," Thuenen-Series of Applied Economic Theory 46, University of Rostock, Institute of Economics.
    11. Rudolf Kerschbamer, 1998. "Disciplinary Takeovers and Industry Effects," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(2), pages 265-306, June.
    12. Committee, Nobel Prize, 2016. "Oliver Hart and Bengt Holmström: Contract Theory," Nobel Prize in Economics documents 2016-1, Nobel Prize Committee.
    13. Eduard Marinov, 2016. "The 2016 Nobel Prize in Economics," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 6, pages 97-149.
    14. Ruth V. Aguilera & Igor Filatotchev & Howard Gospel & Gregory Jackson, 2008. "An Organizational Approach to Comparative Corporate Governance: Costs, Contingencies, and Complementarities," Organization Science, INFORMS, vol. 19(3), pages 475-492, June.
    15. Matthias Kiefer & Edward Jones & Andrew Adams, 2016. "Principals, Agents and Incomplete Contracts: Are Surrender of Control and Renegotiation the Solution?," CFI Discussion Papers 1603, Centre for Finance and Investment, Heriot Watt University.
    16. Santos, Joao C., 1997. "Debt and equity as optimal contracts," Journal of Corporate Finance, Elsevier, vol. 3(4), pages 355-366, December.
    17. Fluck, Zsuzsanna, 1999. "The Dynamics of the Management-Shareholder Conflict," The Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 379-404.
    18. Elsas, Ralf & Krahnen, Jan Pieter, 2003. "Universal Banks and Relationships with Firms," CFS Working Paper Series 2003/20, Center for Financial Studies (CFS).
    19. Chirinko, Robert S. & Elston, Julie Ann, 2006. "Finance, control and profitability: the influence of German banks," Journal of Economic Behavior & Organization, Elsevier, vol. 59(1), pages 69-88, January.
    20. John, Kose & Senbet, Lemma W., 1998. "Corporate governance and board effectiveness1," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 371-403, May.

    More about this item

    Keywords

    Germany; Corporations - Finance;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedlrv:y:1998:i:jul:p:19-42:n:v.80no.4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Scott St. Louis (email available below). General contact details of provider: https://edirc.repec.org/data/frbslus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.