Abstract
Corporate governance structures are essential for shaping enterprise behavior, including the response by enterprises to these pressures and the associated new investment and growth opportunities. Improving the understanding of corporate governance is therefore of utmost importance. Enhanced understanding will permit the identification of policy priorities and tradeoffs as regards the regulatory and institutional environment which conditions corporate governance structures.
The views expressed in this paper are those of the author and do not necessarily represent those of the OECD.
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E. P. Davis, 1996, The Role of Institutional Investors in the Evolution of Financial Structure and Behaviour, Paper prepared for the Reserve Bank of Australia’s Conference on ‘The Future of the Financial System’, 8–9 July 1996, Sydney, Australia.
H. J. Blommestein, Structural changes in Financial Markets: Overview of Trends and Prospects, in: H. J. Blommestein and K. Biltoft, eds., The New Financial Landscape, OECD, Paris, 1995.
A statistical survey was conducted for supporting this study by the CMF Group of Financial Statisticians, encompassing as categories of institutional investors: insurance companies, pension funds, investment companies, and other forms of institutional savings [DAFFE/CMF/RD(97)1]. The latter category was introduced in order to allow for problems in giving a precise definition of ‘institutional investors’ and complications in demarcation of different categories of institutional investors. These complications should be kept in mind when interpreting the figures from the statistical survey, as well as data from other sources.
Efficiency in terms of costs and processing time. See for details H. J. Blommestein and B. J. Summers, Banking and the Payment System, in: Bruce J. Summers, ed., The Payment System — Design, Management and Supervision, IMF, 1994; and I. Sendrovic, Technology and the Payment System, in: Bruce J. Summers, ed., The Payment System — Design, Management and Supervision, IMF, 1994.
H. J. Blommestein, Comment on ‘Building Stability in Latin American Financial Markets’ by L. Rojas-Suarez and S. R. Weisbrod, in: R. Hausmann and H. Reisen, eds., Securing Stability and Growth in Latin America, OECD, 1996.
H. J. Blommestein and M. G. Spencer, ‘Sound Finance and the Wealth of Nations’, North American Journal of Economics and Finance, 1996.
E. P. Davis, 1995, ‘Pension Funds’, Clarendon Press, Oxford, reports the following average transaction sizes: $275,000 (London), $50,000 (Frankfurt), $25, 000 (Paris).
Lower transaction costs boost liquidity because it enables more frequent trade transactions and it increases the number of potential market participants.
A Revolution in Securities Markets’ Structures?, Financial Market Trends No. 65, November 1996.
However, experience in countries such as the Netherlands suggest that there is no one to one relation between pension funds and equity market development, even with a favourable regulatory framework (Davis, 1995, p. 176).
D. Blake, 1990, Financial Market Analysis, McGraw Hill, London; M. Tamura, 1992, Improving Japan’s Employee Pension Fund System, Nomura Research Institute Quarterly, summer, pp. 66–83; Davis, 1995, p. 154.
See for details, OECD Financial Market Trends, No. 63, February 1996.
R. Comment and G. W. Schwert, 1993, Poison or Placebo? Evidence on the Deterrent and Wealth Effects of Modern Anti-take-over Measures, NBER Working Paper No. 4316, April 1993.
M. P. Smith, 1996, Shareholder Activism by Institutional Investors: Evidence from Ca1PERS, the Journal of Finance, Vol. LI, No. 1, March.
Activism’ refers to the involvement in monitoring the management of portfolio firms as opposed to active selection of private securities (e.g. stock picking) without taking an active role in monitoring.
See for details OECD Financial Market Trends, No. 63, February 1996 and E. P. Davis, 1995, ‘Pension Funds’, Claredon Press, Oxford.
C. Mayer, 1996, Corporate Governance, Competition and Performance, Economics Department Working Paper, No. 164, OCDE/(96)99.
R. J. Gilson, 1994, in: M. Isaksson and R. Skog, eds., Aspects of Corporate Governance, Juristfoerlaget, Stockholm, 1994.
R. J. Gilson, 1994, in: M. Isaksson and R. Skog, eds., Aspects of Corporate Governance, Juristfoerlaget, Stockholm, 1994.
In the United States, pension funds were historically passive. This attitude started to change in the 1980s during the takeover boom. The shift to a more active stance was stimulated by three major events of developments: first, the United States Department of labor (the supervisor of the pension funds) stated in a 1988 ruling that decisions on voting were fiduciary acts of plan asset management under ERISA; second, shareholder initiatives on social issues (e.g. environment, South Africa) in the late 1980s, stimulated increased interest by public pension funds in the importance of proxy issues generally; third, the collapse of the take-over movement helped to boost shareholder activism as an alternative mechanism of corporate control.
R. H. Koppes and M. L. Reilly, An Ounce of prevention: meeting the Fiduciary Duty to Monitor an Index Fund, Journal of Corporate Law, University of Iowa, Summer, 1995.
The US Private Litigation Reform Act of 1995 provides for a court-appointed lead plaintiff. It stipulates that the most adequate plaintiff is the person with the largest financial interest in class-action shareholder suits.
For example, the UK Report of the Pension Law Review Committee argued that the average period that a pension fund held a share in the period 1983–1987 declined from 7 years to 2.5 years; see The Pension Law Reform Committee, Pension Law Reform, Volume I, 1993.
Institute of Directors, Short-termism and the State We’re In, August 1996; Jeremy Monk, The Dynamics of Institutional Share Ownership in Major Quoted UK Companies, The Investor Relations Society, 1995.
Council of Institutional Investors, Does Ownership Add Value? Washington D.C.; S. Nesbitt, Long-term Rewards from Corporate Governance, Wilshire Associates, November 1993; Gordon Group, Active Investing in the US Equity Market: Past Performance and Future Prospects, 1993.
See reference in footnote 1.
Financial Times, An extremely Anglo-Saxon takeover bid, 10 March 1997.
Handelsblatt, Krupp continues to pursue full merger with rival Thyssen, 21/March/1997 (English Internet version).
International Herald Tribune. The Hostile Takeover Gets Civilized, March 30th, 1997.
International Herald Tribune. The Hostile Takeover Gets Civilized, March 30th, 1997.
H. J. Blommestein, Structural changes in Financial Markets: Overview of Trends and Prospects, in: H. J. Blommestein and K. Biltoft, eds., The New Financial Landscape, OECD, Paris, 1995.
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Blommestein, H.J. (1998). The New Financial Landscape and its Impact on Corporate Governance. In: Balling, M., Hennessy, E., O’Brien, R. (eds) Corporate Governance, Financial Markets and Global Convergence. Financial and Monetary Policy Studies, vol 33. Springer, Boston, MA. https://doi.org/10.1007/978-1-4757-2633-6_3
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