International Corporate Governance and Law and Finance

1
International Corporate Governance and Law and
Finance

• Darius Miller, Cox School of Business, SMU
  University

2
What does Finance tell us about Corporate
Governance and its risks?

• First, well look at the U.S. based research on
  Corporate Governance
• Well then examine the 1st generation
  international studies
• Next, well take a close look at the LLSV studies
  that spawned the current wave of corporate
  governance research
• Finally, well examine some recent applications
  of their findings to governance research

3
What exactly is Corporate Governance?

• Simply put, corporate governance is the
  mechanisms that make the managers of a firm
  pursue decisions that maximize the value of the
  company to its owners
• or
• Corporate governance deals with the ways in
  which suppliers of finance to corporations assure
  themselves of getting a return on their
  investment Shleifer and Vishny (1997)

4
The History of Corporate Governance Thought

• The idea of corporate governance dates back at
  least as far as Adam Smith in 1776

When ownership and control of corporations are
not fully coincident, there is a potential for
conflicts of interest between owners and
controllers
200 years later, Jensen and Meckling wrote their
now-famous Theory of the firm which applied
agency theory to the modern corporation in which
there is a separation of ownership of control
5
Before the Bad and the Ugly, the Good of the
separation of ownership and control

• While there are obviously potential conflicts of
  interest between owners and managers, surely
  there also must be some benefits of the
  separation of ownership and control, otherwise
  the structure would not have lasted this long.
  What are they?
• People dont usually have both managerial talent
  and financial capital. Warren Buffet probably
  would make a lousy fashion designer. The
  separation allows holders of either talent or
  to make a return on it.
• The ability to raise capital from outside
  investors allows firms to enjoy economies of
  scale larger than managers wealth or risk
  aversion.

6
Global Differences in Corporate Governance Do
they really matter?

• The publication of Jenson and Mecklings model
  spawned a flood of research and debate on the
  cause and effects of corporate governance, which
  is what we will discuss today
• To understand if global differences in corporate
  governance matter, we need to examine how
  governance happens
• What are some corporate governance mechanisms?
• Internal External
• Board of Directors Takeover Market
• Equity ownership Legal System

7
Should Corporate Governance Matter to You?

• Big Picture
• Yes. Whether you are an investor in a firm or a
  business partner, you will care about whether the
  firms best interests or the managements best
  interests are driving the decisions made at a
  firm
• Looking from an investors perspective
• The equity investors are, collectively, the
  owners of a firm
• When we invest, we part with cash in return for a
  financial claim on a firms assets
• Corporate governance is the mechanism by which
  you assure that you get paid back

8
Should Corporate Governance Matter to You?

• In a given country, all legal rules and
  enforcement actions should apply equally to all
  firms
• So, investors are essentially equally protected
  from expropriation by managers no matter what
  firm they buy (or partner with), right?
• Does expropriation still happen?
• Why does it happen for some firms and not others?

9
Examples of Expropriation

• Russia
• AO Yukos - managers transferred Yukos most
  valuable producing petroleum properties to
  offshore companies they controlled
• (source Johnson, Boone, Breach, and Friedman
  2000)
• Asia
• In Malaysia, United Engineers Malaysia bought
  shares in its parent, Renong Berhad, for an
  artificially high price. The shares purchased
  were those held by family members of management
  of UEM and Renong who wanted to bail out.
• (source Business Week June 8, 1998)
• Mexico
• Aerovias de Mexico - Top executive was alleged to
  have embezzled 61 million at the start of the
  1994 financial crisis from the parent of
  Aeromexico and Mexicana airlines
• (source Siegel 2002 Harvard Business School
  working paper)

10
Examples of Expropriation

• Canada
• Hollinger Corporation the controlling
  shareholder Conrad Black, who controls Hollinger
  and another affiliated company, Hollinger
  International (both publicly traded), was
  discovered to have made unauthorized payments of
  at least 32 million USD for noncompete
  agreementsout of the companies to a privately
  held company he controlled called Ravelstone. He
  was forced to resign. (Source recent AP)
• Germany
• Volkswagen, the 75 owner of Audi, forced a
  buyout of a minority SH stake for DM 145 per
  share based on a VW valuation and two weeks later
  negotiated to buy out a much larger minority
  stake in Audi held by the British-Israeli Bank
  for DM 220. The small shareholder asked the court
  to intervene but the German supreme court refused
  to hear the complaint on the grounds that the
  controlling SH did not owe any duties of good
  faith or loyalty to the minority SH.
• (source Johnson et al 2000 American Economic
  Review)

11
What has the past 25 years of research in the
U.S. taught us?

• Internal Governance Mechanisms Board of
  Directors
• Who is the board supposed to work for?
• Shareholders
• What are is there job supposed to be?
• Hire, fire, monitor and compensate management
• However, what have you heard about the
  composition of many corporate boards?
• Members are often insiders
• Often the CEO is the chairperson of the board
• Management often has a strong hand in determining
  members
• Therefore, the value of the board of directors
  has been the focus of much debate (as well as
  many academic research careers).

12
The scientific research on the value of board of
directors breaks down into two categories

• The Size and Structure of Board Composition
• The number of directors that make up the board
  (why?)
• The fraction of directors that are outsiders
• Whether the CEO and Chairperson are
  one-in-the-same.
• Executive Compensation
• How sensitive is executive pay to stock price
  performance (why)
• Ownership and Control
• The Effects of equity ownership by insiders and
  blockholders

13
What has the past 25 years of research in the
U.S. taught us?

• The Size and Structure of Board Composition (see
  Hermalin and Weisbach 2002 survey)
• More outside directors are not associated with
  superior firm performance, but are associated
  with better decisions concerning acquisitions,
  executive compensation and CEO turnover
• Board Size is negatively related to firm
  performance and the quality of decision-making
  (Kmart)
• Executive Compensation (surveys by Murphy 1999
  and Core et al 2001)
• The sensitivity of pay to performance in the US
  has increased over time
• Most of this sensitivity comes through executive
  ownership of common stock and of stock options.
• Stock options are the fastest growing component
  of CEO compensation in the US.

14
Internal Governance Mechanisms Ownership and
Control

• Managerial Ownership If managers own their
  firms equity, then potential conflicts of
  interest should be __________?
• However, its not that simple What if the
  manager still has the desire to expropriate, but
  now has a large equity stake?
• Therefore, the ultimate effect of managerial
  ownership on firm value depends on the trade-off
  between alignment and entrenchment effects.
• Other Stakeholders Institutions, Government,
  Individuals.

15
What has the past 25 years of research in the
U.S. taught us?

• Internal Governance Mechanisms Ownership and
  Control
• Early research in the US assumed that firms are
  owned by widely dispersed shareholders and
  controlled by managers who own little or none of
  the equity of the firm.
• Beginning in the 1980s, research emerged that
  recognized that many US firms do indeed have
  significant equity ownership by insiders or other
  blockholders
• Holderness (2002) surveys the US evidence and
  shows that equity ownership by insiders and
  blockholders (gt5) and finds
• Avg. insider ownership of US firms by insiders is
  20 with large variance
• Merhran (1995) reports that 56 of manufacturing
  firms have outside blockholders

16
The U.S. Evidence Suggests

• Mork, Shleifer and Vishney (1998), McConnell and
  Servaes (1990)
• As managers own more equity of the firm, it has a
  positive impact on value, at least at first.
• However, as inside ownership increases, it as a
  negative effect on value.
• Therefore, the alignment effect of stock
  ownership dominates the entrenchment effect
  initially, the relationship reverses.
• As far as the value implications of other block
  holders, there is no consensus in the data.

17
Thats the U.S., what have learned about the
World?

• At first, most international corporate governance
  research replicated the U.S.-based studies. The
  1st Generation Studies
• Board of Directors
• Japan (Kaplan and Minton 1994) The appointment
  of outside directors stabilize and (modestly)
  improve firm performance
• Europe Not a lot of research, The code of best
  practices which specifies the percentages of
  outside directors was first adopted in 1992 (UK)
  Evidence suggest that CEO turnover has been
  greater after its adoption. (Dahya, McConnell,
  Travlos 2002)
• Russia (Blasi and Shleifer 1996) Most firms are
  majority-owned by insiders and boards are
  controlled by insiders. Government decrees urging
  that 1/3 of boards be composed of outsiders have
  been largely ignored

18
Thats the U.S., what have learned about the
World?

• Board of Directors Cont
• New Zealand (Hossain, Prevost, Rao 2001) The
  higher the fraction of outside directors, the
  better firm performance
• Spain (Rodriguez and Anson 2001) Stock prices
  reacted positively to the announcement of
  compliance with the Spanish Code of Best
  practice, which strengthened the supervisory role
  of Spanish directors.
• Australia(Suchard, Sing, Barr 2001) CEO turnover
  is positively related to the presence of
  non-executive directors on the board
• Belgium (Renneboog) Same as above
• Overall, worldwide evidence seems to support that
  better monitoring by the board is a good thing

19
Thats the U.S., what have learned about the
World?

• Executive Compensation
• Japan (Kaplan 1994) The relation between
  compensation and stock returns (pay for
  performance) is similar to the U.S.
• UK (Conyon and Murphy 2000) Level of
  compensation and sensitivity of compensation to
  increases in stock returns much higher in U.S.
  than U.K., largely due to the greater option
  awards in the U.S.
• Spain (Crespi et al 2002) CEO pay increased
  following increases in performance
• Overall, the latest empirical evidence on board
  structure and executive compensation around the
  world is broadly consistent with the more
  extensive US evidence.

20
Ok, so whats the latest insights on
international corporate governance?

• This second generation of research into
  corporate governance started off with the seminal
  work of Harvard Professors LaPorta,
  Lopez-de-Silanes, Shleifer, and Vishny
• Law and Finance

21
Relative World Market Capitalization, 2000
22
Emerging Markets Share
23
Distribution of World Market Capitalization
source SP Emerging Market Fact Book
24
Where would Microsoft fit in here?
MC of MSFT taken as of June 2002
25
What could Bill Gates Buy?

• As of June 11, 2002, Bill was worth 35.7 Billion
  USD
• There fore, he could buy the entire stock market
  of the one of following countries
• Iran, Luxembourg, Poland, Austria
• Alternatively, he could buy ALL of the following
  Stock Markets

• And still have 5 or so Billion left over

26
The Worlds IPOs/Population
27
Number of Listed Firms Per Population
28
Ratio of Bank debt of Private Sector and
outstanding non-financial bonds to GNP
29
Some Questions

• Why do some countries have so much bigger capital
  markets than others?
• Why do hundreds of companies go public in the
  United States every year, while only a few dozen
  went public in Italy over a decade?
• Why do Germany and Japan have such extensive
  banking systems, even relative to other wealthy
  economies?
• Why, to take an extreme example, do Russian
  companies have virtually no access to external
  finance and sell at about one hundred times less
  than Western companies with comparable assets?

30
What would traditional finance say?

• Where do our founding fathers, Modigliani and
  Miller (1958), say the value of securities come
  from?
• Think of the differences between debt and equity
• http//web.mit.edu/newsoffice/nr/2003/modigliani.h
  tml
• However, recent thinking says this traditional
  view is incomplete, that actually the defining
  feature of various securities is the RIGHTS they
  bring to their owners
• What rights are bondholders entitled to?
• What rights do shareholders typically get?
• What is relationship between managers and owners
  that make this view important?

31
Therefore, the RIGHTS attached to securities
become important when managers act in their own
interest (i.e. Governance Problems)
32
So, is the view that securities are defined by
their intrinsic rights the whole story?

• Would a secured creditor in Germany fair as well
  as when the borrower defaults as one in Sri Lanka
  or Italy, even assuming the value of the is the
  same in all cases?
• What do you think is the role of Enforcement?

33
The Law and Finance view of the World

• Recall, in the MM world, cash flows promised
  (rights) are cash flows received.
• However, the Law and Finance view recognizes that
  the rights promised by stocks and bonds are only
  meaningful and secure if the legal system
  provides rights written into laws and a means for
  their enforcement.

34
What insights does this way of thinking provide?

• How could investor protections explain observed
  corporate finance differences across countries?
• How could investor protections explain observed
  economic growth differences across countries?
• How could investor protections explain observed
  differences in ownership concentration across
  countries?
• Lets examine this in more detail and see
• LaPorta, Lopez-de-Silanes, Shleifer, and Vishny
  (1998, 1997)

35
To what Extent do Laws Pertaining to Investor
Protection Differ Across Counties?

• To answer this, we need to measure the laws
  protecting security holders as well as the
  quality of their enforcement
• Shareholder Rights (Anti-director Rights)
• Shareholders exercise their power by voting For
  (1) directors and (2) on major corporate issues.
  Therefore, we measure how strongly the legal
  system favors minority shareholders against
  managers or dominant shareholders in the
  corporate decision-making process.
• Creditor Rights
• More complex to determine, since many kinds of
  creditors (junior, senior, secured, unsecured).
  We take the perspective of the senior, secured
  creditor.
• Also, need to assess rights in both liquidation
  as well as reorganization.
• In addition to the individual legal rules, we
  will compare whole legal families across a large
  number of countries.

36
The Shareholder Rights Index (0-6) A Country
gets one point added when

• The country allows shareholders to mail their
  proxy vote to the firm
• (world bank donkey example)
• Shareholders are not required to deposit their
  shares prior to the general shareholders meeting
• If required, it prevents shareholders from
  selling shares for several days around the time
  of the meeting and keeps shareholders who do not
  do it from voting.
• Cumulative voting or proportional representation
  of minorities in board is allowed
• Gives more power for minority shareholders to put
  their representatives on the board.

37
The Shareholder Rights Index (0-6) A Country
gets one point added when

• An oppressed minorities mechanism is in place
• The right to challenge the directors decisions in
  court (derivative suit)
• The right to force the company to repurchase
  shares of minority shareholders who object to
  certain fundamental decisions (mergers or asset
  sales).
• The minimum percentage of share capital that
  entitles a shareholder to call for an
  extraordinary shareholders meeting is less than
  or equal to 10
• The higher the , the harder it is for minority
  shareholders to organize a meeting to challenge
  or oust management. (ranges from 3 in Japan to
  33 in Mexico).
• Shareholders have preemptive rights that can be
  waived only by a shareholders vote.
• Intended to protect shareholders from dilution,
  where shares are issued to favored investors at
  below-market prices

38
Creditor Rights Index (0-4) A Country gets one
point added when

• The country imposes restrictions, such as
  creditors consent or minimum dividends to file
  for reorganization
• Reorganization, at best, delays payment of
  creditors. Gives management a great deal of power
  (chapter 11 in U.S.)
• Secured creditors are able to gain possession of
  their security once the reorganization petition
  has been approved (i.e., no automatic stay on
  assets)
• In Greece, secured creditors have the right to
  force liquidation when their claim matures and
  not when the borrower defaults.
• Secured creditors are ranked first in the
  distribution of the proceeds that result from the
  disposition of the assets of a bankrupt firm
• The debtor does not retain the administration of
  its property pending the resolution of the
  reorganization
• U.S. versus Malaysia

39
Legal Origins Where do the laws come from?

• Laws in difference are not typically written from
  scratch, but rather transplanted-voluntarily or
  otherwise from a few legal families or traditions
• Commercial laws come from two broad traditions
  that have spread by conquest, imperialism,
  outright borrowing, and more subtle imitation
• Common Law
• Civil Law

40
Common Law

• Common Law originated in England a millennium ago
  and was established chiefly by judges who
  resolved specific factual disputes
• It has been exported to many British colonies,
  such as Australia, Canada, New Zealand and the
  United States.
• Common Laws, originate by becoming commonly
  accepted as standards of practice (hence the U.S.
  term generally accepted accounting principles)
• Enforcement of common law is a private matter,
  accomplished through civil litigation (hence the
  importance of stockholder litigation in
  common-law countries, such as the U.S.)
• The penalty for violating common law is the award
  of damages to the party whose rights are proven
  violated.

41
Civil (or Code) Law

• Code Law is the oldest, the most influential, and
  the most widely distributed legal tradition
  around the world.
• Code Law originated with the Romans, who
  implanted it in many Continental European
  countries, from there it was exported to most of
  the former colonies of France, Germany, Italy,
  Portugal, and Spain.
• During the Meiji era (1868-1910), Japan grafted
  German Law and French accounting into its feudal
  bakuhan system.
• Code Law originates in governments or
  governmental administrative bodies (which write
  the code) and is enforced by governments.
• Code violation is a criminal matter, with
  criminal penalties (fines, imprisonment,
  restrictions on practice).
• Legal scholars typically identify three common
  families of laws within the civil tradition
  French, German, and Scandinavian.

42
Quality of Law Enforcement Measures

• Efficiency of the Judicial System
• Rule of Law
• Corruption
• Risk of Expropriation
• Repudiation of Contracts by Government

43
Shareholder Rights Some Evidence
44
World Bank Governance Indicators

• http//info.worldbank.org/governance/kkz2002/gov20
  01map.asp
• http//www.worldbank.org/wbi/governance/govdata200
  2/

45
Shareholder Rights Some Evidence
46
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49
China
50
Shareholder Rights Some Evidence French Origin
Countries
51
Enforcement
52
Rule of Law
53
Ownership Concentration and Legal Systems

• For each country, LLSV get the average ownership
  stake of the three largest shareholders among its
  10 largest publicly traded companies.
• They content that Investor protections may
  influence even the extent to which we see
  concentration of ownership around the world. Why
  might this be?
• First, large shareholders who keep tabs on
  managers may need to own more capital to exercise
  their control rights when they are in bad legal
  environments
• Second, when they are poorly protected, small
  investors might only buy shares at such low
  prices that makes it unattractive to issue new
  shares to the public.

54
Table 7. Ownership of 10 Largest Nonfinancial
Domestic Firms by Large Shareholders
55
Table 7. Ownership of 10 Largest Nonfinancial
Domestic Firms by Large Shareholders
56
Table 7. Ownership of 10 Largest Nonfinancial
Domestic Firms by Large Shareholders
57
Table 7. Ownership of 10 Largest Nonfinancial
Domestic Firms by Large Shareholders
58
Overall, we see that

• Dispersed ownership in large public companies is
  simply a myth. Even in the U.S., the average for
  the 10 most valuable companies is 20 percent
• The finance textbook model of management faced
  by multitudes of dispersed shareholders is an
  exception and not the rule.

59
LLSV (1998) Conclusions
LLSV (1998) established Law and Finance
measures that described the protection of
minority investors, that is, the external
corporate governance environment
1
LLSV (1998) also show us how these measures vary
by Country and by Legal Origin.
2
Ownership concentration varies by legal origin,
suggesting that concentration of ownership is an
adaptation to poor external corporate governance
3
60
LLSV (1997) Legal Determinants of External
Finance

• In LLSV (1998), we established Law and Finance
  Measures that described the protection of
  minority investors.
• LLSV (1998) also show us how these measures vary
  by Country and by Legal Origin.
• Now, LLSV (1998) looks at their impact on the
  ability of companies to raise external funds
  (either debt or equity)
• In other words, does law and finance help us
  answer the questions we first asked?

61
(Recall) Some Questions

• Why do some countries have so much bigger capital
  markets than others?
• Why do hundreds of companies go public in the
  United States every year, while only a few dozen
  went public in Italy over a decade?
• Why do Germany and Japan have such extensive
  banking systems, even relative to other wealthy
  economies?
• Why, to take an extreme example, do Russian
  companies have virtually no access to external
  finance and sell at about one hundred times less
  than Western companies with comparable assets?

62
LLSV (1997) Measures of Equity Finance
63
LLSV (1997) Measures of Equity Finance
64
LLSV (1997) Measure of Debt Finance

• Debt / GNP
• Ratio of the sum of bank debt of the private
  sector and outstanding nonfinancial (i.e.,
  corporate) bonds to GNP in 1994, or last
  available.
• Source International Financial Statistics,
  World Bondmarket Factbook.

65
Table 2. External Finance by Legal Origin
66
Table 3. External Finance by Investor Rights
67
Table 3. External Finance by Investor Rights
68
LLSV (1997) Conclusions
The legal environment matters for the size and
extent of a countrys capital market.
1
Civil law, and particular French Civil law,
countries have both the weakest investor
protections and least developed capital markets.
2
LEGAL ENVIROMENTS DIFFER ACROSS COUNTRIES, AND
THIS MATTERS FOR FIRM VALUE AND FINANCIAL MARKETS

3
69
So, how else has this new way of thinking change
the way we view international corporate
governance?

• Lets look at the very latest research on firm
  level corporate governance, the separation of
  ownership and control

70
Should Firm-level Corporate Governance Matter to
You?

• Look to the firm level for governance
• Need to consider the desire and opportunity for
  managers to expropriate from minority
  shareholders
• What can you observe that tells you managers are
  likely to act in the interest of their firms
  shareholders?
• What can you observe that tells you managers
  might prefer to act in their own interest
  instead?

71
Private benefits of control (PBC)

• Controlling shareholders can extract value from
  the firm to the detriment of minority investors
• Stealing
• Transfer pricing, asset stripping
• Investor dilution
• Information acquisition
• Right to shape corporate policy
• Decide over the use of a firms assets in all
  circumstances not explicitly restricted by law or
  contract obligations

72
Examples of Expropriation

• Russia
• AO Yukos - managers transferred Yukos most
  valuable producing petroleum properties to
  offshore companies they controlled (source
  Johnson, Boone, Breach, and Friedman 2000)
• Asia
• In Malaysia, United Engineers Malaysia bought
  shares in its parent, Renong Berhad, for an
  artificially high price. The shares purchased
  were those held by family members of management
  of UEM and Renong who wanted to bail out.
  (source Business Week June 8, 1998)
• Mexico
• Aerovias de Mexico - Top executive was alleged to
  have embezzled 61 million at the start of the
  1994 financial crisis from the parent of
  Aeromexico and Mexicana airlines
• (source Siegel 2004)

73
Examples of Expropriation

• Canada
• Hollinger Corporation the controlling
  shareholder Conrad Black, who controls Hollinger
  and another affiliated company, Hollinger
  International (both publicly traded), was
  discovered to have made unauthorized payments of
  at least 32 million USD for noncompete
  agreementsout of the companies to a privately
  held company he controlled called Ravelstone. He
  was forced to resign. (Source recent AP)
• Germany
• Volkswagen, the 75 owner of Audi, forced a
  buyout of a minority SH stake for DM 145 per
  share based on a VW valuation and two weeks later
  negotiated to buy out a much larger minority
  stake in Audi held by the British-Israeli Bank
  for DM 220. The small shareholder asked the court
  to intervene but the German supreme court refused
  to hear the complaint on the grounds that the
  controlling SH did not owe any duties of good
  faith or loyalty to the minority SH.
• (source Johnson et al 2000 American Economic
  Review)

74
Control versus Ownership

• The higher the percentage of control, the greater
  is the capability for managers to expropriate
• The higher their percentage of ownership of a
  firms shares, the lesser is the desire to
  expropriate
• How do we measure this?

75
Measuring Control and Ownership

Firm A Top Managers Mr. Really Big Mr. Big
MRB Enterprises
Mr. Really Big
40 ownership
25 ownership
10 ownership
10 ownership
Pension Fund
Mr. Big
What is the Management groups percentage control
of Firm A? What is the Managements percentage
ownership of cash flows that accrue to Firm A?
76
Live Exercise lets get into groups and look at
a company
77

78

79
Separation of Ownership and Control

• Suppose that the managers (P.D. Villares and
  W.N. Brumer) divert a dollar out of Acos Villares
  for their own private benefit.
• This lowers the value of Acos Villares by 1, but
  only reduces the value of the managers stock
  holdings by 2 cents.
• Minority shareholders in Acos Villares bear the
  vast majority of the costs.
• Separation of ownership and control provides
  managers with incentives to divert resources for
  private benefit.

80
Does Ownership Structure Really Matter?
Recall Examples of Expropriation Asia In
Malaysia, United Engineers Malaysia bought shares
in its parent, Renong Berhad, for an artificially
high price. The shares purchased were those held
by family members of management of UEM and Renong
who wanted to bail out. (source Business Week
June 8, 1998)
81
Does Ownership Structure Really Matter?
82
When Should Corporate Governance Matter the Most?

• Holding expected firm-level and country-level
  governance constant, when should investors and
  business partners be concerned the most?

83
The Cost of Poor Corporate Governance

• Firms pay a cost for poor governance. Since
  investors fear expropriation, they generally
  cannot raise funds on favorable terms
• Raises their cost of capital
• High cost of capital is associated with lower
  overall economic activity
• Lets look at a recent presentation to China by
  the World Bank

84
Can Anything be Done about Poor Governance?

• Firm Level Without changing ownership structure,
  managers with expected corporate governance
  problems can signal investors that they are
  committed to good governance by
• Saying so on their website
• Making credible commitments to improve disclosure
• Cross list equity on a stock exchange with good
  governance
• U.S. ADR -- must adhere to almost all SEC
  guidelines
• Reveal more than is necessary by law
• Equity analysts will follow firms that disclose
  more and this will help get the story out
• Making credible commitments to be monitored
• Issue debt through U.S. public debt markets
• Borrow from a syndicate of international banks
• Get rid of excess cash by paying dividends

85
Can Anything be Done about Poor Governance?

• Country Level
• Prosecute and jail controlling managers who break
  the law (enforcement)
• Change laws to make it difficult to construct
  ownership schemes that lead investors to infer
  there may be governance problems
• Get rid of dual class share structures