When 'Good' Corporate Governance Makes 'Bad' (Financial) Firms: The Global Crisis and the Limits of Private Law
8 Pages Posted: 24 Nov 2009 Last revised: 11 Dec 2009
Date Written: November 17, 2009
In the aftermath of the Global Financial Crisis, legislators, regulators and journalists have focused on "bad" corporate governance as one root of the evil visited on the global financial system, and "good" or "improved" corporate governance as one of the remedies for repair. This short writing - using BNP Paribas and AIG as examples - makes the perhaps counter-intuitive argument that, insofar as "good" corporate governance made directors and managers responsive to the shareholders' interest, it may have caused those same directors and managers to take on unsustainable risk so as to increase current profits and support the public stock price valuation. This means that "good" corporate governance is not really a solution to remedying or protecting against the next Crisis, and indicates why long-term, systemic risk-regarding, prudential regulation is.
Keywords: corporate governance, financial sector, global financial crisis, prudential regulation, banks, financial institutions
JEL Classification: D23, F02, F30, G15, G18, G30, K22, K23, M14
Suggested Citation: Suggested Citation