Corporate Governance and First-Best Solutions: A Sociological Perspective
21 Pages Posted: 4 May 2010 Last revised: 29 Nov 2011
Date Written: February 17, 2010
Drawing on insights from social science methodology and systems analysis, the article adopts a holistic view of the equity markets and highlights how market forces have been driving the evolution in the equity markets towards a first-best corporate governance model. This governance model is the Market Oriented Blockholder Model (MOBM). The analysis shows that the process is not yet complete given that the legal framework has not yet updated its foundation to fully accommodate the MOBM. Such a failure by policy makers creates an opportunity for the introduction, into the financial system, of regulatory systemic risk – long-term imbalances introduced into the regulatory framework by regulators via regulatory initiatives premised on a distorted understanding of market realities. This is illustrated using the example of the treatment of institutional investors by market participants and regulators.
Keywords: corporate governance, ownership, institutional investors, regulation, capital markets
JEL Classification: K22, G23, G32, G34, G38
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