Critically evaluate different models of corporate governance. What Essay

Critically evaluate different models of corporate governance. What implications do these models have for meeting the growing de - Essay Example Models of corporate governance The difference of contexts, in which the governance is made, brings variations in corporate governance model. It is not a single rigid structure that might describe the pattern of corporate governance in every country in the world (Morck, Wolfenzon and Yeung, 2005). There are three distinguished models of corporate governance: The Anglo-US Model Equity financing is commonly used as a technique of raising capital by private corporations in the US and the US. By virtue of this practice, the US is known for having the world’s largest capital market. A causal relationship exists between equity financing and the size of capital market which affects the development process of Anglo-US corporate governance system. The important participants in the Anglo-US model are the board of directors and the shareholders or institutional investors. Government agencies and other regulatory organizations also form a part of corporate governance model. ... Japanese model The Japanese model exhibits high stock ownership by private companies and banks. In this model, a banking system is characterized by strong and long-term links with corporations operating with the banking system. Equity financing holds an important position in the workings of Japanese corporations. However, the major shareholders in these corporations are the insiders and their affiliates. In this model, interests of the outsiders are marginal. A very small percentage of Japanese stocks are owned by foreign investors. In Japanese corporate governance, as contrasted with Anglo-US model, non-affiliated shareholders do not have a concrete position. Hence, truly independent directors, representing the outside (or foreign) shareholders, are present in very few numbers (Li, et al., 2012). Figure 2: Open-ended hexagon (Source: Emergingmarketsesg, 2011) German model The German model of corporate governance differs remarkably from both the models discussed above. There are cert ain distinctive elements of the German model, which distinguish it from the other models discussed in this paper (Ahrens and Khalifa, 2013). In most German corporations a traditional preference towards bank financing is noticed over equity financing. This shows that stock market capitalization in Germany is much smaller compared to the size of German economy. In addition, individual stock ownership is also very low in Germany, which is indicative of the factor that German investors are risk averse and adopt conservative investment strategy. Corporate governance structure in the country is strong intention of preserving long term relationships among the key economic agents, i.e, the banks and private corporations (Emergingmarketsesg, 2011). The system is inclined towards