Corporate Governance and Financial Stability

Abstract:     
The relationship between corporate governance and financial stability is an intermediate one. Firms have no obligation to take financial stability into account except when the law or the applicable regulation imposes it. In several fields this is the case: regulation of auditors or credit rating agencies are motivated by financial stability issues. Shortcomings in the governance of large financial and other groups have indicated that these may trigger systemic risks. The paper mentions a few fields where - apart from regulations directly applicable to the firms that triggered the crisis - corporate governance rules should be strengthened to avoid systemic crises to develop again: management remuneration, the role of the CEO and the composition of the boards, accounting and valuation issues are already on the political agenda. The paper leaves it open whether these provisions have to be introduced by way of hard law, or whether existing systems of soft regulation would suffice.

Number of Pages in PDF File: 16

Keywords: financial stability, auditors, credit rating agencies, corporate governance codes, incentives

JEL Classification: K12, K22, K23, M14

working papers series