The City and Corporate Performance: Condemned or Exonerated?

This paper summarizes the conventional wisdom concerning differences between financial systems. It argues that many of them do not stand up to close scrutiny. Instead, it suggests that the main differences concern the concentration and nature of ownership. Systems with high concentrations of ownership (frequently in the hands of families and other companies) may encourage more direct monitoring and control, greater stability in decision-taking, and greater commitment to other stakeholders than systems with more dispersed ownership. On the other hand, they are more subject to the private benefits of control and less flexible in responding to external factors. Different systems may, therefore, be suited to different types of corporate activity. Instead of seeking to impose uniform forms of corporate governance, the paper concludes that regulation should be permissive in allowing companies to choose their preferred forms of ownership and control.