International Corporate Governance
Winter 2007, Volume 19.1

The Limits of Financial Globalization
Barriers to international investment have fallen sharply over the last 60 years, but cross-country differences in investment and financing have persisted. This article argues that the cause is the agency problems between controlling and minority shareholders, and between the state and shareholders. As countries and companies effectively manage these problems, all nations will benefit from increasingly global financial markets.

Explaining Differences in the Quality of Governance Among Companies: Evidence from Emerging Markets
This article examines corporate governance in Asia, Latin America, and Eastern Europe. The findings show considerable variation in the “quality” of governance and disclosure practices within the same country, with the amount of variation increasing in countries with less investor-friendly legal and regulatory environments. Companies with attractive investment opportunities adopted stringent governance to attract investors.

The Revolution in Active Investing: Creating Wealth and Better Governance
A major resurgence of active investing has occurred, led by the remarkable growth of private equity and activist hedge funds. Five factors suggest that this development will have a deeper and more lasting impact than prior waves: greater availability of capital, deeper industry expertise, powerful modeling capabilities, receptive boardrooms, and greater competition increasing the need to restructure.

Investment Banking: Past, Present, and Future
Over the past 40 years, investment banks have evolved from small partnerships focused on advising and underwriting to huge, well-capitalized firms that put their own financial capital at risk. This article explores how changes in technology have led to the codification of many traditional banking functions, diverging from judgment-intensive functions that are giving rise to “boutique” firms.

The Evolution of Shareholder Activism in the United States
Shareholder activists have used the proxy process, along with other approaches, to pressure corporate boards and managers for change. Although the aim is to increase corporate values, the empirical evidence on the effects of such activism is at best mixed. The recent increase in hedge fund activism appears to be associated with dramatic corporate changes and increases in share values, but the research is still preliminary.

Cash Holdings, Dividend Policy, and Corporate Governance: A Cross-country Anaysis
This article examines the relationship between the market value of corporate cash holdings and corporate governance. Using a sample of companies representing 35 countries, a dollar of liquid assets was worth roughly a dollar to minority investors in countries deemed to have high investor protection. But in countries with less investor protection, a dollar of liquid assets is worth much less.

The Ownership Structure, Governance, and Performance of French Companies
The progressive internationalization of the French economy and stock exchange during the past decade has resulted in a wide range of ownership structures among listed French companies. The author finds that corporate performance improves with increases in the controlling shareholder's percentage ownership stake, reaching peak levels at around 25-30% ownership and then falling thereafter.

For Better Corporate Governance, The Shareholder Value Review
This article proposes a three-part Shareholder Value Review as a means for corporate boards to communicate to shareholders how the board monitors management's performance in increasing shareholder value. The SVRs would motivate management and boards to reduce their emphasis on meeting Wall Street's quarterly earnings targets and focus instead on managing the firm's assets to create wealth over the long term.

Microfinance—On the Road to Capital Markets
Microfinance has recently experienced remarkable growth, providing 600 million of the world's poorest people with access to capital. This article offers an introduction to this innovative financing method, along with an account of recent efforts to connect microfinance with mainstream global capital markets and the formidable challenges the industry faces as it grows. A number of cases studies illustrate microfinance in action.

The views and opinions expressed in the Journal do not necessarily represent those of Morgan Stanley or its affiliates.