Property Rights in Firms

This paper presents a property-rights-based approach to comparative corporate governance. Two central claims are advanced. The first is that property rights institutions are the principal source of diversity among national corporate governance systems. More specifically, firms in a given economy are shaped by (1) the extent to which control rights over assets are allocated to politicians and bureaucrats rather than private agents, and (2) the degree to which control rights over assets are legally as opposed to politically or socially enforced. To illustrate, the paper examines cross-country data on such factors as economic freedom, corruption, and political risk to create a property rights spectrum for the United States, Japan, and South Korea that explains observed corporate governance differences among the three countries.The second claim is that convergence of corporate governance systems will be limited, despite the existence of powerful market forces operating at the global level. Property rights analysis is again used to frame the argument. While the efficiency concerns that drive the mechanisms of convergence operate powerfully on firm managers, they act only weakly on the political actors who hold significant control rights over firms in every economy. Thus, convergence will occur only where institutional inertia grounded in politics can be overcome. Even where formal rules converge, differences in enforcement practices linked to distinctive national structures are likely to persist