The Economics of Corporate Governance and Mergers
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The Economics of Corporate Governance and Mergers

Edited by Klaus Gugler and B. Burcin Yurtoglu

This book provides an insightful view of major issues in the economics of corporate governance (CG) and mergers. It presents a systematic update on the developments in the two fields during the last decade, as well as highlighting the neglected topics in CG research, such as the role of boards, CG and public interest and the relation of CG to mergers. Two important conclusions can be drawn from this book: the first is that corporate governance systems that better align shareholders’ and managers’ interests lead to better corporate performance; second, there is an important relationship between CG structures and the quality of firm decision-making, one of the most important being the decision to merge or take over another firm.
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Chapter 1: The Economics of Corporate Governance and Mergers

Klaus Gugler and B. Burcin Yurtoglu

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1. The economics of corporate governance and mergers Klaus Gugler and B. Burcin Yurtoglu 1 INTRODUCTION Over the last two decades, corporate governance (CG) has become an important issue both in the academic literature and in public policy debates. This sudden attention is interesting, because some basic issues related to CG have been raised at least since Berle and Means (1932). Over these last two decades, many issues such as mergers and takeovers, financial structure of the firm, organizational structures, the relationship between performance and ownership have been analysed within the framework of CG. Having said that, it is all the more interesting to note that there is no single definition of CG and the CG problem. Starting with the influential book by Berle and Means (1932), the attention of academia has focused on a narrow view of CG. According to this view, CG problems in the modern corporation arise when professional managers are not accountable to dispersed shareholders. This view, which corresponds to the principal–agent framework, culminated in the following definition of CG: ‘Corporate governance deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment’ (Shleifer and Vishny, 1997). Consequently, much of the research on CG took an investor perspective and looked at the ways in which corporate insiders can attract external financing from outside investors. This narrow view has been criticized and challenged by others who argue that other stakeholders, such as employees, customers,...

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