Entrepreneurship and Innovation: The Hidden Costs of Corporate Governance in Europe

Lex Research Topics in Corporate Law & Economics Working Paper No. 2/2010

42 Pages Posted: 26 Oct 2010 Last revised: 29 Jul 2014

See all articles by Jose Miguel Mendoza

Jose Miguel Mendoza

Universidad de Los Andes

Christoph Van der Elst

Tilburg Law School; Ghent University - Department of Business Law; European Corporate Governance Institute (ECGI)

Erik P. M. Vermeulen

Tilburg University - Department of Business Law; Signify (formerly known as Philips Lighting) - Legal Department; Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI); Kyushu University - Graduate School of Law

Date Written: October 26, 2010

Abstract

This paper discusses new corporate governance trends in the aftermath of the financial crisis. We consider the rationale used by policymakers for introducing stricter rules and codes of best practice, such as the Stewardship Code (which targets institutional investors in the United Kingdom), as well as recent initiatives to encourage board diversity. There is a division of opinion regarding whether listed firms should be subject to new, more stringent, regulations. The competing views are assessed critically. In this regard, we find hidden costs of corporate governance in Europe which can be classified into three groups: (1) increasing entry level expenses for firms with high growth potential, (2) the deception of investors and (3) short-termism by managers. This paper concludes that more economic evidence is required before new corporate governance reforms are introduced and suggests that policymakers should preferably focus on the existing minimum standards of corporate behaviour supported by open norms.

Keywords: corporate governance, takeovers, shareholder rights, executive compensation, board diversity, enforcement, innovation, entrepreneurship

JEL Classification: G18, G34, G38, K22, L26

Suggested Citation

Mendoza, Jose M. and Van der Elst, Christoph and Vermeulen, Erik P.M., Entrepreneurship and Innovation: The Hidden Costs of Corporate Governance in Europe (October 26, 2010). Lex Research Topics in Corporate Law & Economics Working Paper No. 2/2010, Available at SSRN: https://ssrn.com/abstract=1698352 or http://dx.doi.org/10.2139/ssrn.1698352

Jose M. Mendoza

Universidad de Los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

Christoph Van der Elst

Tilburg Law School ( email )

Tilburg, 5000 LE
Netherlands

Ghent University - Department of Business Law ( email )

Universiteitstraat 4
Gent, B-9000
Belgium

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Erik P.M. Vermeulen (Contact Author)

Tilburg University - Department of Business Law ( email )

Signify (formerly known as Philips Lighting) - Legal Department ( email )

Amstelplein 2
Amsterdam
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Kyushu University - Graduate School of Law ( email )

6-19-1, Hakozaki, Higashiku
Fukuoka, 812-8581
Japan

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