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Equilibrium in Corporate Governance: Effects in Developing Countries

Equilibrium in Corporate Governance: Effects in Developing Countries
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Author(s): Sonia Marcos (University of Burgos, Spain) and Luis A. Castrillo (University of Burgos, Spain)
Copyright: 2020
Pages: 19
Source title: Corporate Governance Models and Applications in Developing Economies
Source Author(s)/Editor(s): Otuo Serebour Agyemang (University of Cape Coast, Ghana), Abraham Ansong (University of Cape Coast, Ghana) and Ben Kwame Agyei-Mensah (Solbridge International School of Business, South Korea)
DOI: 10.4018/978-1-5225-9607-3.ch007

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Abstract

Corporate governance systems around the world are shaped by legal traditions, but the most important determinant of their effectiveness is law enforcement. Developing countries tend to have weak institutional structures and contracting environments. In this context, markets are inefficient and ownership concentration becomes the main corporate governance mechanism in order to protect property rights. How can developing countries design an optimal corporate governance system in their poor business environments? Corporate governance mechanisms are interdependent, and each country needs to search for a set of mechanisms in equilibrium—that is, an optimal combination of control and incentives—that solves its own agency problems. But another problem in developing countries is the lack of public enforcement. Just as internal mechanisms may substitute for ineffective external mechanisms, private initiatives may reinforce weak public enforcement.

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