Political Power and Corporate Control

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Why does corporate governance vary dramatically around the world, especially highlighted by the collapses of Enron, WorldCom, and Parmalat? This book explores how politics influences corporate governance, detailing the competition among managers, shareholders, and workers to establish the rules governing companies. It presents a theoretical model of this political interaction and supports it with statistical evidence from thirty-nine countries across Europe, Asia, Africa, and the Americas, along with in-depth country case narratives. Unlike most analyses, it attributes variations in minority shareholder protections and ownership concentration to the interplay of economic preferences and political institutions. The role of pension plans and financial intermediaries in shaping political preferences for governance rules is emphasized. The countries studied fall into two categories: those with diffuse shareholding by external investors who select boards to monitor managers, and those with concentrated blockholding by insiders who directly oversee management. The authors investigate the political coalitions that emerge among management, owners, and workers, revealing that some coalitions foster policies favoring diffuse shareholding, while others promote blockholding. Political institutions play a key role in determining which coalition prevails.