Fiche de révision : Principes de la gouvernance d'entreprise

📋 Plan du Cours

1. The Agency Problem
2. Financing Without Governance
3. Legal Protection for Investors
4. Role of Large Investors
5. Role of Large Creditors
6. Costs of Large Investors
7. Specific Governance Arrangements
8. Debt Versus Equity Choice
9. Leveraged Buyouts (LBOs
10. Cooperatives and State Ownership
11. Comparing Governance Systems
12. Conclusion on Corporate Governance Research

📖 1. The Agency Problem

🔑 Notions clés & Définitions

• Separation of ownership and control : Fama, Eugene, and Michael Jensen, 1983a, Separation of ownership and control, Journal of Law and

📝 Points essentiels

• The manager needs the financiers’ funds because he either does not have enough capital or wants to cash out holdings.
• The financiers need the manager’s specialized human capital to generate returns on their funds.
• The basic contractual response is a contract that specifies what the manager does with the funds and how the returns are divided between him and the financiers.

💡 À retenir

Corporate governance is framed here as the problem created by separating management from finance, or ownership from control. The central question is how to assure financiers that they get a return on their financial investment.

📖 2. Financing Without Governance

🔑 Notions clés & Définitions

• Financing without governance : Situation in which outside finance occurs even though investors part with their money, have little to contribute afterward, and need assurance that their sunk capital will still generate a return.
• Unattractive projects : Projects that managers may choose with financiers’ funds instead of productive use, creating a risk that capital is wasted.

📝 Points essentiels

• Financiers also face the risk that managers will waste funds on unattractive projects instead of productive use.
• The central question is how financiers can be sure they get anything back after parting with their money.
• The possibility that managers could abscond with the money explains why financing alone is not enough without control mechanisms.
• Governance 749 the common element that investors do not get any control rights in exchange for their funds, only the hope that they will make money in the future. Reputation-building is a very common explanation for why people deliver on their agreements even if they cannot be forced to (see, for example, Kreps (1990)). In the financing context, the argument is that managers repay inves- tors because they want to come to the capital market and raise funds in the future, and hence need to establish a reputation as good risks in order to convince future investors to give them money. This argument has been made initially in the context of sovereign borrowing, where legal enforcement of contracts is virtually nonexistent (Eaton and Gersovitz (1981), Bulow and Rogoff (1989)). However, several recent articles have presented reputation- building models of private financing. Diamond (1989, 1991) shows how firms establish reputations as good borrowers by repaying their short term loans, and Gomes (1996) shows how dividend payments create reputations that enable firms to raise equity. There surely is much truth to the reputation models, although they do have problems. As pointed out by Bulow and Rogoff (1989), pure reputational stories run into a backward recursion problem. Suppose that at some point in the future (or in some future states of the world), the future benefits to the
• The fundamental question of corporate governance is how to assure financiers that they get a return on their financial investment.

💡 À retenir

Financiers also face the risk that managers will waste funds on unattractive projects instead of productive use.

📖 3. Legal Protection for Investors

🔑 Notions clés & Définitions

• Legal protection of investors : Concentration of ownership as complementary approaches to governance.
• Shareholder voting rights : Supplemented by an affir- mative duty of loyalty of the managers to shareholders.

📝 Points essentiels

• If managers violate the contract, financiers can appeal to the courts to enforce their rights.
• Differences in corporate governance across countries stem largely from differences in managers' legal obligations to financiers and in court enforcement.
• Shareholders' most important legal right is the right to vote on major corporate matters and in board elections.
• Voting rights are expensive to exercise and enforce, especially when shareholders must appear in person to vote.
• Managers can interfere with voting by jawboning shareholders, concealing information, or manipulating the voting process.
• Governance 769 theory. First, the virtual absence of protection of minority shareholders makes it attractive for managers to divert resources from the firms despite their large personal cash flow stakes, since in this way they do not need to share with outside investors at all. Second, managers in many cases are not competent to restructure the privatized firms, yet in virtue of their control rights remain on the job and "consume" the benefits of control. In fact, some of the most successful privatizations in Russia have been the ones where outside investors have accumulated enough shares to either replace or otherwise control the management. Such outside investors have typically been less capable of di- verting the profits for themselves than the managers, as well as better capable of maximizing these profits. The example of the Russian privatization vividly illustrates both the benefits and the costs of concentrated ownership without legal protection of minority investors. VII. Which System is the Best? Corporate governance mechanisms vary a great deal around the world. Firms in the United States and the United Kingdom substantially rely on legal protection of investors. Large investors are less prevalent, except that owner- ship is concentrated sporadically in the takeover process. In much of Conti- nental Europe as well as in Japan, there is less reliance on elaborate legal
• In developed countries, courts can be relied on to ensure that voting takes place, but even there managers often interfere in the voting process, and try to jawbone shareholders into supporting them, conceal information from their opponents, and so on (Pound (1988), Grundfest (1990)).

💡 À retenir

Investor protection depends on both formal legal rights and the ability of courts and voting procedures to make those rights effective. Where voting is costly or easily manipulated, even formal rights may not protect investors well.

📖 4. Role of Large Investors

🔑 Notions clés & Définitions

• Control rights : Rights that let investors decide what to do with the firm or influence management, especially when concentrated ownership gives them power beyond dispersed shareholders.
• Clear : They have both the interest in getting their money back and the power to demand it.
• Large investors : Using this general framework, we discuss several potential costs of having large investors: straightforward expropriation of other inves- tors, managers, and employees;

📝 Points essentiels

• Large investors are important because concentrated ownership can help investors collect returns from firms.
• Large investors are part of the broader solution to the separation between financing and management.
• Governance 739 power. Specifically, we consider reputation-building in the capital market and excessive investor optimism, and conclude that these are unlikely to be the only reasons why investors entrust capital to firms. Sections III and IV then turn to the two most common approaches to corporate governance, both of which rely on giving investors some power. The first approach is to give investors power through legal protection from expro- priation by managers. Protection of minority rights and legal prohibitions against managerial self-dealing are examples of such mechanisms. The second major approach is ownership by large investors (concentrated ownership): matching significant control rights with significant cash flow rights. Most corporate governance mechanisms used in the world-including large share holdings, relationship banking, and even takeovers- can be viewed as exam- ples of large investors exercising their power. We discuss how large investors reduce agency costs. While large investors still rely on the legal system, they do not need as many rights as the small investors do to protect their interests. For this reason, corporate governance is typically exercised by large investors. Despite its common use, concentrated ownership has its costs as well, which can be best described as potential expropriation by large investors of other investors and stakeholders in the

💡 À retenir

Large investors are important because concentrated ownership can help investors collect returns from firms.

📖 5. Role of Large Creditors

🔑 Notions clés & Définitions

• Large creditors : Significant creditors that are also large and potentially active investors, with the interest in getting their money back and the power to demand it.
• Lending power : A source of influence that comes from a creditor's ability to lend and, in some cases, to play a dominant role in lending and control over equity votes.
• Large shareholders : Courts to enforce their voting rights, takeover artists need court-protected mechanisms for buying shares and changing boards of directors, and creditors need courts to enable them to repossess collateral.

📝 Points essentiels

• Financial intermediaries are discussed in governance, but their function as collectors of savings from the public is explicitly ignored.
• Banks are presented as a major example of large creditors with potential governance influence because they can have lending power and control over equity votes.
• Debt can create leverage over managerial behavior because creditors have both the interest in getting their money back and the power to demand it.

💡 À retenir

Banks are presented as a major example of large creditors with potential governance influence because they can have lending power and control over equity votes.

📖 6. Costs of Large Investors

🔑 Notions clés & Définitions

• Private benefits of control : Benefits that a controller can obtain for himself rather than maximizing the wealth of all investors, including gains from special deals and other private advantages of control.

📝 Points essentiels

• Banks may have no incentive to discipline managers and may instead cater to them to get more business as long as the firm is far away from default.
• Large investors may be too soft because they fail to terminate unprofitable projects when continuation is preferred to liquidation.
• A large investor may be rich enough to prefer private benefits of control rather than maximizing wealth.
• If a large investor does not own the entire firm, the investor does not internalize the cost of control benefits borne by other investors.
• These problems imply that large investors can fail to force managers to maximize profits and pay them out.
• Governance 759 they control. Greenmail and targeted share repurchases are examples of spe- cial deals for large investors (Dann and DeAngelo 1983). A small number of papers focus on measuring the degree of expropriation of minority shareholders. The very fact that shares with superior voting rights trade at a large premium is evidence of significant private benefits of control that may come at the expense of minority shareholders. Interestingly, the two countries where the voting premium is the lowest-Sweden and the United States-are the two countries for which the studies of expropriation of minor- ities have been made. Not surprisingly, Bergstrom and Rydqvist (1990) for Sweden and Barclay and Holderness (1989, 1992) for the United States do not find evidence of substantial expropriation. In contrast, the casual evidence provided by Zingales (1994) suggests that the expropriation problem is larger in Italy, consistent with a much larger voting premium he finds for that country. Some related evidence on the benefits of control and potential expropriation of minority shareholders comes from the studies of ownership structure and performance. Although Demsetz (1983) and Demsetz and Lehn (1985) argue that there should be no relationship between ownership structure of a firm and its performance, the evidence has not borne out their view. Morck, Shleifer, and Vishny (1988b) present
• However, as ownership gets beyond a certain point, the large owners gain nearly full control and are wealthy enough to prefer to use firms to generate private benefits of control that are not shared by minority share- holders.

💡 À retenir

The downside of concentrated ownership is that large investors may not monitor aggressively. They can cater to managers, keep unprofitable projects alive, or use control to pursue private benefits rather than firm-wide value.

📖 7. Specific Governance Arrangements

🔑 Notions clés & Définitions

• Specific governance arrangements : Specific Governance Arrangements In the previous sections, we discussed the roles of legal protection and concentrated ownership in assuring that investors can collect their returns from firms.
• Equity : Suppose for simplicity that the manager owns no equity in the firm.
• Corporate governance : The corporate governance mechanisms provide this assurance.
• Governance systems : Because all these economies have the essential elements of a good governance system, the available evidence does not tell us which one of their governance systems is the best.

📝 Points essentiels

• Debt and equity are treated as finance instruments with different governance implications.
• State ownership is presented as a particular organizational form that is rarely conducive to efficiency.
• This section serves as the bridge from broad governance principles to concrete institutional designs.
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can

💡 À retenir

Cette section déplace l’analyse des principes généraux vers des arrangements concrets de gouvernance. Elle relie le problème d’agence à des instruments de financement et à des formes organisationnelles précises.

📖 8. Debt Versus Equity Choice

🔑 Notions clés & Définitions

• Bankruptcy : Gilson, Stuart, 1990, Bankruptcy, boards, banks, and block
• Debt Versus : Fluck, Zsussanna, 1995, The optimality of debt versus outside equity, manuscript, New York University.
• Equity ownership : This may pave the way for some dispersed outside equity ownership as long as minority rights are well enough protected.
• Where debt : But even where debt is not very concentrated, the effective legal protection afforded creditors is likely to be greater than that enjoyed by dispersed equity holders.

📝 Points essentiels

• In the newer governance view, the defining feature of debt is the ability of creditors to exercise control.
• A borrower promises a prespecified stream of future payments to the lender.
• If the borrower violates a covenant, the lender can obtain rights such as repossessing assets as collateral or forcing bankruptcy.
• Governance 757 Last but not least, hostile takeovers are politically an extremely vulnerable mechanism, since they are opposed by the managerial lobbies. In the United States, this political pressure, which manifested itself through state anti- takeover legislation, contributed to ending the 1980s takeovers (Jensen (1993)). In other countries, the political opposition to hostile takeovers in part explains their general nonexistence in the first place. The takeover solution practiced in the United States and the United Kingdom, then, is a very imperfect and politically vulnerable method of concentrating ownership. C. Large Creditors Significant creditors, such as banks, are also large and potentially active investors. Like the large shareholders, they have large investments in the firm, and want to see the returns on their investments materialize. Their power comes in part because of a variety of control rights they receive when firms default or violate debt covenants (Smith and Warner (1979)) and in part because they typically lend short term, so borrowers have to come back at regular, short intervals for more funds. As a result of having a whole range of controls, large creditors combine substantial cash flow rights with the ability to interfere in the major decisions of the firm. Moreover, in many countries, banks end up holding equity as well as debt of the firms they invest
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can

💡 À retenir

La dette est présentée comme un instrument de gouvernance parce que le non-respect du contrat transfère des droits de contrôle au créancier. Cette logique la distingue du cadre de Modigliani-Miller, où la dette n’est qu’un schéma de flux de trésorerie.

📖 9. Leveraged Buyouts (LBOs

🔑 Notions clés & Définitions

📝 Points essentiels

• Leveraged buyouts belong to the set of governance arrangements discussed through the debt channel.
• The logic of LBOs fits the broader idea that debt can discipline firms through creditor rights.
• LBOs are best understood as a governance mechanism rather than only a financing technique.
• Governance 765 Because the equity holders have voting power and legal protection of minor- ity shareholders, they have the ability to extract some payments from the managers in the form of dividends. Easterbrook (1984) articulates the agency theory of dividend payments, in which dividends are for equity what interest is for debt: pay out by the managers supported by the control rights of the financiers, except in the case of equity these control rights are the voting rights. More recently, Fluck (1995) and Myers (1995) present agency-theoretic models of dividends, based on the idea that shareholders can threaten to vote to fire managers or liquidate the firm, and therefore managers pay dividends to hold off the shareholders. These models do not explicitly address the free rider problem between shareholders; namely, how do they manage to organize themselves to pose a threat to the management when they are small and dispersed? Concentration of equity ownership, or at least the threat of such concentration, must be important to get companies to pay dividends. One of the fundamental questions that the equity contracts raise is how- given the weakness of control rights without concentration- do firms manage to issue equity in any substantial amounts at all? Equity is the most suitable financing tool when debt contracts are difficult to enforce, i.e., when no specific collateral can

💡 À retenir

Leveraged buyouts are presented as a remarkable phenomenon that illustrates both the benefits and the costs of having large investors. They are an extreme debt-based governance structure in which leverage intensifies discipline and changes managerial incentives.

📖 10. Cooperatives and State Ownership

🔑 Notions clés & Définitions

• State ownership : A similar argument has been used to justify state ownership of firms.

📝 Points essentiels

• The survey pays some attention to cooperatives but does not focus on a broad variety of noncapitalist ownership patterns.
• The survey explicitly excludes worker ownership and nonprofit organizations from its main scope.
• Cooperatives are included only as a limited comparison point within the broader governance discussion.
• In addition, we discuss state ownership-a particular organizational form that, for reasons discussed in this article, is rarely conducive to efficiency.

💡 À retenir

Cette section fixe la frontière du survey en accordant seulement une attention limitée aux coopératives et en excluant les autres formes de propriété non capitalistes. La propriété publique y est présentée comme une forme spécifique de contrôle concentré, associée à des objectifs politiques et rarement favorable à l’efficacité.

📖 11. Comparing Governance Systems

🔑 Notions clés & Définitions

• Governance systems : Above discussion does not address the question that has interested many people, namely which of the developed corporate governance systems works the best?
• United States : But this does not imply that the United States should move in the same direction as well.

📝 Points essentiels

• The survey compares governance systems across countries, with the United States receiving the most attention because most English-language evidence comes from there.
• Recent work on Japan receives substantial attention, with additional reference to Germany, Italy, and Sweden.
• The survey also refers to privatized firms in Russia, despite the lack of systematic research there.
• The comparative picture is limited by the extreme scarcity of research on corporate governance in most countries.
• Differences in governance systems are tied to differences in legal protection and ownership concentration across countries.
• Governance 773 informed investors. These investors may be better able to help distressed firms as well. Still, there are serious questions about the effectiveness of these investors, largely because their toughness is in doubt. As Charkham (1994) has shown, German banks are large public institutions that effectively control themselves. There is little evidence from either Japan or Germany that banks are very tough in corporate governance. Finally, at least in Germany, large- investor-oriented governance system discourages small investors from partic- ipating in financial markets. In sum, despite a great deal of controversy, we do not believe that either the theory or the evidence tells us which of the three principal corporate governance systems is the best. In this regard, we are not surprised to see political and economic pressures for the three systems to move toward each other, as exemplified by the growing popularity of large share- holders in the United States, the emergence of public debt markets in Japan, and the increasing bank-bashing in Germany. At the same time, in thinking about the evolution of governance in transition economies, it is difficult to believe that either significant legal protection of investors or takeovers are likely to play a key role. In all likelihood, then, unless Eastern Europe is stuck with insider domination and no private exter- nal finance
• This combination sepa- rates them from governance systems in most other countries, which provide extremely limited legal protection of investors, and are stuck with family and insider-dominated firms receiving little external financing.

💡 À retenir

The survey treats governance as a cross-country institutional comparison shaped by uneven evidence across national systems. It contrasts systems with significant legal protection and large investors against most other systems marked by weak protection, concentrated ownership, and little external financing.

📖 12. Conclusion on Corporate Governance Research

🔑 Notions clés & Définitions

• Question of corporate governance : The field concerned with the agency problem created by the separation of management and finance, and with how financiers can be assured of a return on their investment.

📝 Points essentiels

• The article is a survey of corporate governance research rather than a new theory or dataset.
• The survey's main emphasis is on legal protection of investors and ownership concentration in corporate governance systems around the world.
• The authors stress that corporate governance remains of enormous practical importance even in advanced market economies.
• The scarcity of research outside a few countries is itself a major conclusion about the state of the field.

💡 À retenir

This survey presents corporate governance as a major practical issue centered on investor protection, ownership concentration, and control of managers. It also shows the field as still incomplete, with limited empirical evidence beyond a few countries and no settled answer on the best system.

🧩 Compléments de couverture

1. L’article est signé par Andrei Shleifer et Robert W. Vishny et publié dans The Journal of Finance en juin 1997, volume 52, numéro 2, pages 737-783.
2. La gouvernance d’entreprise est définie comme la manière dont les fournisseurs de finance s’assurent d’obtenir un rendement sur leur investissement.
3. Les auteurs soulignent que les managers peuvent parfois s’enfuir avec l’argent des investisseurs, même si cela n’arrive pas en général.
4. Les mécanismes de gouvernance peuvent être améliorés, même dans les économies de marché avancées où le problème est déjà relativement bien résolu.
5. L’article cite explicitement Coase, Jensen et Meckling, ainsi que Fama et Jensen, comme fondateurs de la vision contractuelle de la firme.
6. Les contrats complets sont jugés technologiquement irréalisables parce que la plupart des contingences futures sont difficiles à décrire et à prévoir.
7. Les droits de contrôle résiduels sont définis comme les droits de décision dans les circonstances non prévues par le contrat.
8. Les conseils d’administration varient fortement selon les pays, allant des conseils à deux niveaux en Allemagne aux conseils dominés par les initiés au Japon.
9. L’évidence sur l’efficacité des conseils est mixte, et les conseils n’agissent souvent qu’en cas de catastrophe de performance.
10. Les tribunaux américains n’interviendraient sûrement pas seulement en cas de vol de gestion ou de dilution des actionnaires existants par émission d’actions.
11. Un emprunteur qui viole un covenant ou fait défaut peut perdre des droits de contrôle au profit du prêteur, qui peut notamment saisir des actifs ou pousser à la faillite.
12. Myers et Majluf soutiennent que la dette bien notée est émise avant les actions parce qu’elle est plus facile à valoriser.
13. Aghion et Bolton montrent que la dette peut transférer le contrôle aux créanciers dans un mauvais état du monde.
14. Bolton et Scharfstein modélisent le défaut comme un moyen pour les créanciers d’exclure l’entreprise du marché du capital et d’arrêter le financement futur.
15. 180 on Sat, 18 Feb 2023 15:46:23 UTC All use subject to https://about.
16. Gorton and Schmid (1996) show that bank block holders improve the perfor- mance of German companies in their 1974 sample, and that both bank and nonbank block holders improve performance in a 1985 sample.
17. 737-783 Published by: Wiley for the American Finance Association Stable URL: https://www.
18. Contracts The agency problem is an essential element of the so-called contractual view of the firm, developed by Coase (1937), Jensen and Meckling (1976), and Fama and Jensen (1983a,b).

📅 Repères chronologiques

📊 Tableaux de Synthèse

Investor protection and control mechanisms

Debt, dividends, and governance

⚠️ Pièges & Confusions Fréquentes

1. Confusing financing without governance with financing that already gives investors control rights
2. Treating formal legal rights as sufficient even when voting is costly or manipulable
3. Assuming large investors always improve governance; they can be too soft or seek private benefits
4. Mixing up creditor control under debt with shareholder voting rights under equity
5. Thinking hostile takeovers are a stable governance solution rather than a politically vulnerable one
6. Assuming dividends are only a payout choice, not also an agency response to shareholder control

✅ Checklist Examen

1. Define corporate governance as the problem created by separating ownership from control
2. Explain why financiers need assurance that sunk capital will earn a return
3. Describe financing without governance as outside finance with no control rights
4. State that managers may waste funds on unattractive projects
5. Recall that courts can enforce financiers’ rights when managers violate contracts
6. Remember that shareholder voting rights are costly to exercise and can be manipulated
7. Distinguish control rights from private benefits of control
8. List the main costs of large investors: expropriation, soft discipline, and private benefits
9. Explain that debt is defined by creditor control in the newer governance view
10. Link dividends to equity voting power and minority-shareholder protection
11. Note that hostile takeovers are politically vulnerable and imperfect