Capital Markets and Corporate Governance in Japan, Germany by Helmut Dietl

Capital Markets and Corporate Governance in Japan, Germany by Helmut Dietl

By Helmut Dietl

This ebook explores a sequence of questions about the variations within the capital markets in Japan, Germany and the us, and includes empirical and comparative experiences from the 3 nations.

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Extra resources for Capital Markets and Corporate Governance in Japan, Germany and the United States: Organizational Response to Market Inefficiencies

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Accordingly, the burden of disciplining management teams of public 21 THEORETICAL FRAMEWORK corporations will shift from privileged universal banks to capital market forces. 8 Non-default control rights enable privileged universal banks to create a network of personal relationships between bank executives and industry leaders. This network provides an important communication channel. Bank executives who meet regularly with industry leaders and who are personally involved in corporate decision making acquire more than valuable explicit information about current economic facts and future developments.

1) The amount of debt which can be raised by a firm is usually limited in various ways (amount of equity, reputation, specificity of assets). As long as a firm’s legal form requires personal identity of ownership and control, the amount of equity which can be raised is limited as well. Privately held companies which need large amounts of capital to finance their activities have to transform into publicly held corporations in order to raise the necessary amounts of capital. Transformation into a publicly held corporation requires that equity rights are offered to a large number of investors.

The size of their financial resources enables investment companies and investment trusts to realize economies of scale with respect to volume-independent transaction costs and to diversify their portfolios more completely than small investors. By diversifying unsystematic risk, fund intermediation eliminates the highrisk differential between common stock and other forms of investment (Friend et al. 1970:22). As a result, fund intermediation reduces the costs of equity. Small investors no longer have to incur the risk of holding an incompletely diversified portfolio when investing in common stock.

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