Path dependence, corporate governance and complementarity

  • In a series of recent papers, Mark Roe and Lucian Bebchuk have developed further the concept of path dependence, combined it with concepts of evolution and used it to challenge the wide-spread view that the corporate governance systems of the major advanced economies are likely to converge towards the economically best system at a rapid pace. The present paper shares this skepticism, but adds several aspects which strengthen the point made by Roe and Bebchuk. The present paper argues that it is important for the topic under discussion to distinguish clearly between two arguments which can explain path dependence. One of them is based on the role of adjustment costs, and the other one uses concepts borrowed from evolutionary biology. Making this distinction is important because the two concepts of path dependence have different implications for the issue of rapid convergence to the best system. In addition, we introduce a formal concept of complementarity and demonstrate that national corporate governance systems are usefully regarded as – possibly consistent – systems of complementary elements. Complementarity is a reason for path dependence which supports the socio-biological argument. The dynamic properties of systems composed of complementary elements are such that a rapid convergence towards a universally best corporate governance systems is not likely to happen. We then proceed by showing for the case of corporate governance systems shaped by complementarity, that there even is the possibility of a convergence towards a common system which is economically inferior. And in the specific case of European integration, "inefficient convergence" of corporate governance systems is a possible future course of events. First version December 1998, this version March 2000.

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Author:Reinhard H. SchmidtGND, Gerald Spindler
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 27
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (27)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2000
Year of first Publication:2000
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/09/27
Tag:Corporate governance; complementarity; convergence; economic systems
GND Keyword:Corporate Governance; Institutionalismus; Evolutorische Wirtschaft; Anpassung; Hysterese
Issue:version March 2000
Page Number:30
Last Page:27
first version December 1998, this version March 2000
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht