Firms Behaving Nicely : Incentives and Commitment

Ever since the rise of large firms in the 18th century, debate has been raging about how to combine economic efficiency and productivity with socially desirable behavior of firms. This paper reviews the debate starting with the classic corporate go...

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Bibliographic Details
Main Author:	Klein, Michael
Format:	Working Paper
Language:	English en_US
Published:	International Finance Corporation, Washington, DC 2014
Subjects:	ACCOUNTING ACCOUNTING STANDARDS AGENCY PROBLEM AGENTS OF SHAREHOLDERS ASSET MANAGER ASYMMETRIC INFORMATION BANKRUPTCY BANKS BID BOARD MEMBERS BONDS BORROWER BUYBACKS CASH FLOW CEO CEOS CHECKS CHIEF EXECUTIVE COLLATERAL COMMITMENT DEVICES COMPANIES ACT COMPANY LAW COMPETITIVE MARKETS CONFLICTS OF INTEREST CONTRACTUAL SAVING CONTROLLING MINORITY CONTROLLING SHAREHOLDERS COOPERATIVES CORPORATE BEHAVIOR CORPORATE CONDUCT CORPORATE EXECUTIVES CORPORATE FINANCE CORPORATE FORM CORPORATE GOVERNANCE CORPORATE GOVERNANCE MECHANISMS CORPORATE GOVERNANCE PRINCIPLES CORPORATE GOVERNANCE STANDARDS CORPORATE ORGANIZATION CORPORATE RAIDERS CORPORATE SCANDALS CORPORATE SOCIAL RESPONSIBILITY CORPORATE STRUCTURE CORPORATION CORPORATIONS COST OF CAPITAL CREDIBILITY CREDIT DEFAULT CREDIT DEFAULT SWAPS CREDITORS CUSTODY DEBT DEBT CONTRACT DEBT CONTRACTS DEBT MARKETS DEBT OBLIGATIONS DEBT SERVICE DEBT SERVICE PAYMENTS DEFAULT RISK DEFAULTS DERIVATIVE DEVELOPING COUNTRIES DIVIDEND DIVIDEND FIRMS DIVIDEND PAYMENTS DIVIDENDS ECONOMIC EFFICIENCY EMERGING MARKETS EMPLOYMENT CONTRACTS ENFORCEMENT SYSTEM EQUITY CONTRIBUTIONS EQUITY MARKETS EQUITY SECURITIES ETHICAL BEHAVIOR EX ANTE EX POST EXCESS RETURN EXPENDITURES EXTERNAL FINANCE FAMILY BUSINESSES FAMILY FIRMS FIDUCIARY DUTY FINANCE CORPORATION FINANCES FINANCIAL CRISIS FINANCIAL INSTITUTIONS FINANCIAL PERFORMANCE FINANCIAL RISK FINANCIAL SECTOR FOREIGN INVESTORS FRAUD FUND MANAGER FUND MANAGERS GLOBAL CORPORATE GOVERNANCE GOOD CORPORATE GOVERNANCE GOVERNANCE ARRANGEMENTS GOVERNANCE STANDARDS GOVERNMENT POLICIES HOLDING HOLDINGS HOSTILE TAKEOVERS HUMAN RESOURCE INCORPORATED INCORPORATION INDIVIDUALS INITIAL PUBLIC OFFERING INSURANCE INSURANCE COMPANIES INSURANCE COMPANY INTEREST PAYMENTS INTEREST RATE INTERESTS OF SHAREHOLDERS INTERNAL FINANCE INTERNATIONAL FINANCE INVESTING INVESTMENT FUNDS INVESTMENT OPPORTUNITIES INVESTMENT VEHICLES ISSUANCE JOINT STOCK COMPANIES JOINT-STOCK COMPANIES LARGE COMPANIES LARGE SHAREHOLDER LARGE SHAREHOLDERS LEGAL FRAMEWORK LEGAL FRAMEWORKS LEGAL PROTECTION LEGAL PROTECTIONS LIMITED LIMITED LIABILITY LIQUIDATION LIQUIDITY LONG-TERM INTEREST LONG-TERM INTERESTS MAJORITY OF SHARES MAJORITY SHAREHOLDERS MARKET ANALYSTS MARKET BENCHMARKS MARKET COMPETITION MARKET INFRASTRUCTURE MICROFINANCE MINORITY INVESTORS MINORITY SHAREHOLDER MINORITY SHAREHOLDERS MOBILE PHONE MODERN BUSINESS MONETARY FUND MONOPOLY MONOPOLY POWERS MORAL HAZARD MORTGAGE MORTGAGE MARKET MUNICIPALITIES MUTUAL FUNDS NONPROFIT AGENCIES NONPROFIT ORGANIZATION NONPROFIT ORGANIZATIONS NONPROFIT STATUS PENSION PENSION FUND PENSION FUNDS PENSIONS POISON PILLS PRICE-EARNINGS RATIOS PRINCIPAL-AGENT PRINCIPAL-AGENT PROBLEM PRIVATE PROPERTY PRIVATE SECTOR DEVELOPMENT PROTECTING MINORITY SHAREHOLDERS REGULATORY FRAMEWORKS REGULATORY REFORMS REPAYMENT RETAIL INVESTORS RETURN RETURNS RETURNS ON EQUITY RIGHT OF SHAREHOLDERS RISK PREMIUMS SAVINGS SEPARATION OF OWNERSHIP SEVERANCE PAYMENTS SHARE OF EQUITY SHARE OF INVESTMENTS SHARE VALUE SHAREHOLDER SHAREHOLDER CONTROL SHAREHOLDER INTERESTS SHAREHOLDER PROTECTIONS SHAREHOLDER RELATIONSHIPS SHAREHOLDER RIGHTS SHAREHOLDER VALUE SHAREHOLDERS SHAREHOLDERS RIGHTS SMALL INVESTORS SOCIETIES SOCIETY SPECIFIC INVESTMENT SPECIFIC INVESTMENTS STAKEHOLDER STAKEHOLDER MANAGEMENT STAKEHOLDERS STOCK EXCHANGES STOCK MARKET STOCK OPTIONS STOCKHOLDERS STOCKS SUBSIDIARY SUPERIOR ORGANIZATIONAL FORMS SUPERVISORY BOARD SUPERVISORY BOARDS TAKEOVER TAKEOVER BID TAX TRADING TRANSACTION TRANSACTION COSTS TRANSPARENCY TREASURY TREASURY BILLS TRUSTEES WEALTH CREATION WORLD MARKETS
Online Access:	http://documents.worldbank.org/curated/en/2013/09/19541781/firms-behaving-nicely-incentives-commitment http://hdl.handle.net/10986/19037

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Summary:	Ever since the rise of large firms in the 18th century, debate has been raging about how to combine economic efficiency and productivity with socially desirable behavior of firms. This paper reviews the debate starting with the classic corporate governance argument about shareholder rights. It discusses the potential incentives to exploit other stakeholders unduly and examines some mechanisms, beyond contracts and regulation, to cope with this exploitation. In this light it considers reputational mechanisms, using the example of corporate social responsibility, and changes to the constitution of firms, with emphasis on the nonprofit form of enterprise. Based on evidence so far, the for-profit firm with mechanisms assuring sound shareholder rights remains preferable to the alternatives. However, scope for experimentation with mechanisms such as different classes of shareholders with differing voting rights may be socially useful, which suggests that global corporate governance principles thus should not be prescriptive in detail.

Firms Behaving Nicely : Incentives and Commitment

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