International Review of Law and
Economics 25 (2005) 513–540
Functional Change and Bank Strategy in German
Corporate GovernanceDwight B. Crane a,1, Ulrike Schaede b,∗
a Harvard Business School, United States
b University of California, San Diego, Graduate School of International Relations and Pacific Studies,
La Jolla, CA 92093-0519, United States
AbstractThis paper analyses changes in the German corporate governance system in the 1990s, using a
代写留学生论文functional perspective that separates the functions of governance from the institutions that perform
these functions. Financial globalization, harmonized legislation within the European Union, and
domestic pressures have triggered a move away from the postwar German system of bank-based
governance, and towards more market-oriented processes. The paper shows that these forces have
resulted in heightening transparency, more active capital markets, and a greatly reduced role of banks
in the governance process. However, Germany’s 2002 boycott of EU takeover legislation has created a
void in the current governance system: because bank intervention and the market for corporate control
are substitutes, a reduced role of a banks and protective takeover legislation mean that one important
governance function is currently underserved.
© 2005 Elsevier Inc. All rights reserved.
Keywords: Corporate governance reform; Germany, EU takeover code harmonization; Functional perspective
1. Introduction
The corporate governance system of a country determines the set of institutions that are
entrusted with the process of monitoring firms, by either inducing or forcing management
∗ Corresponding author. Tel.: +1 858 534 2357.
E-mail addresses: dcrane@hbs.edu (D.B. Crane), uschaede@ucsd.edu (U. Schaede).
1 Tel.: +1 617 495 6679.
0144-8188/$ – see front matter © 2005 Elsevier Inc. All rights reserved.
doi:10.1016/j.irle.2005.12.001516 D.B. Crane, U. Schaede / International Review of Law and Economics 25 (2005) 513–540
2. System change in corporate governance
We propose that the change process is best analyzed based on a functional perspective,
in which the specific functions of corporate governance are separated from the institutions
that perform them. The underlying functions of corporate governance, such as protecting
the providers of capital, are stable over time and across geographic boundaries, but the
institutional arrangements for performing these functions can vary considerably in different
environments or over time. Thus, an analysis of change should focus on assessing variations
in the processes through which the main functions of corporate governance are delivered.
In this section, we introduce this model and operationalize it by determining expected areas
of change.
2.1. A functional perspective of governance
Effective corporate governance systems perform three key functions.4 The first is to
protect the interests of the providers of financial capital and other resources, and to resolve
conflicts among those interests. This protection assures the efficient flow of goods and
services to business firms, in particular from creditors. A second function is to provide
ways to manage problems stemming from inadequate or incomplete information. Given
managers’ superior information about the firm’s condition and prospects, well-functioning
governance systems must ensure informa
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