Objectivity, Proximity and Adaptability in Corporate Governance

30 Pages Posted: 15 Jul 2000

See all articles by Arnoud W. A. Boot

Arnoud W. A. Boot

University of Amsterdam - Amsterdam Business School; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Jonathan R. Macey

Yale Law School

Date Written: March 2000

Abstract

Countries appear to differ considerably in the basic orientations of their corporate governance structures. We postulate the trade-off between objectivity and proximity as fundamental to the corporate governance debate. We stress the value of objectivity that comes with distance (e.g. the market oriented U.S. system), and the value of better information that comes with proximity (e.g. the more intrusive Continental European model). Our key result is that the optimal distance between management and monitor (board or shareholders) has a bang-bang solution: either one should capitalize on the better information that comes with proximity or one should seek to benefit optimally from the objectivity that comes with distance. We show that this result points at an important link between the optimal corporate governance arrangement and industry structure. In this context, we also discuss the ways in which investors have "contracted around" the flaws in their own corporate governance systems, pointing at the adaptability of different arrangements.

JEL Classification: G34

Suggested Citation

Boot, Arnoud W. A. and Macey, Jonathan R., Objectivity, Proximity and Adaptability in Corporate Governance (March 2000). Available at SSRN: https://ssrn.com/abstract=216390 or http://dx.doi.org/10.2139/ssrn.216390

Arnoud W. A. Boot (Contact Author)

University of Amsterdam - Amsterdam Business School ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4162 (Phone)
+31 20 525 5318 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Jonathan R. Macey

Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
+203-432-7913 (Phone)
+203-4871 (Fax)

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