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 6: Competition between Profit Seekers and Non-Profit Firms: The Case of German Banking

Manfred Neumann, Richard Reichel and Jürgen Weigand


6. Competition between profit seekers and non-profit firms: the case of German banking Manfred Neumann, Richard Reichel and Jürgen Weigand 1 INTRODUCTION In most industrialized countries non-profit firms (NPs) account for a substantial share of economic activity. In many cases they are competing with profit-seeking firms. In the present economics literature NPs tend to be viewed to be less efficient than profit-seeking firms. Thus, NPs are frequently predicted to be doomed to failure. So far, this prediction has not come true, however. An outstanding example is the banking industry in Germany. It rests on three pillars: profit-seeking commercial banks, cooperative banks seeking to foster the economic well-being of their members, and non-profit-seeking public sector banks (local savings banks, federalstate central banks, and development banks) obliged by law to pursue common goals. In the present chapter we wish to examine the competitive interplay of these banks and evaluate their economic performance and ability to survive. The chapter is organized as follows. In section 2 we briefly discuss the characteristics of the German banking sector. The different pillars also reflect different ownership and governance structures. The interesting question is how these differences in the underlying goal of a bank, namely profit maximization vs. furthering the common weal, as reflected in the banks’ governance approach impact the market outcome. Therefore, section 3 presents a Cournot-type model of competition between profit-seeking and non-profit-seeking banks. We show...

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