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CORPORATE GOVERNANCE AND CONTROL

Chapter ICORPORATE GOVERNANCE AND CONTROLMARCO BECHT*ECARES, Universit Libre de Bruxelles and European CORPORATE GOVERNANCE Institute (ECGI)PATRICK BOLTON*Bendheim Center for Finance at Princeton University, NBER, CEPR and ECGIAILSA ROELL*Bendheim Center for Finance at Princeton University, CEPR and ECGIC ontentsAbstract 3 Keywords 31 Introduction 42 Historical origins: a brief sketch How representative is CORPORATE government? Whom should CORPORATE government represent? 73 Why CORPORATE GOVERNANCE is currently such a prominent issue The world-wide privatization wave Pension funds and active investors Mergers and takeovers Deregulation and capital market integration The 1998 Russia/East Asia/Brazil crisis Scandals and failures at major USA corporations 134 Conceptual framework Agency and contracting Ex-ante and ex-post efficiency Shareholder value Incomplete contracts and multiple constituencies Why do we need regulation?

2.2 Whom should corporate government represent? 7 3 Why corporate governance is currently such a prominent issue 7 3.1 The world-wide privatization wave 8 3.2 Pension funds and active investors 9 3.3 Mergers and takeovers 12 3.4 Deregulation and capital market integration 12 3.5 The 1998 Russia/East Asia/Brazil crisis 12

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