A Legislator under Surveillance: The Creation and Implementation of Swiss Banking Legislation 1910-1934

This paper analyses how banking regulation was introduced in Switzerland - one of the world's most prominent financial centres - which remained in place until the beginning of the twenty-first century. It shows that the law adopted on 8 November 1934 is a perfect example of capture of the regulator by the regulated. Essentially a political response in the context of the economic crisis of the 1930s, it largely reflected the interests of banking circles by limiting the intervention of the State as much as possible. The introduction of the new legislation was facilitated by the temporary weakness of Swiss banking circles, as they depended on the State to delay or prevent the collapse of many major credit institutions. They did not manage to derail the law as they had two decades earlier when they scuppered the federal bill on banks drawn up between 1914 and 1916. But this time they were better organized and more united, and intervened all the more effectively in the legislative process itself. The 1934 law is thus distinctive in that it made no structural changes to the architecture of the financial centre but merely codified its practices through flexible legislation meant to reassure the public. The law was aimed less at controlling banking activity than at keeping - thanks to skilfully calibrated political concessions - the State from having to intervene more directly in the internal management of banks or in the fixing of interest rates and the export of capital.

Ownership Effects on Unrelated Diversification: An Institutions' Perspective

Purpose To show that differences in the extent to which firms engage in unrelated diversification can be attributed to differences in ownership structure. Methodology/approach We draw on longitudinal data and use a panel analysis specification to test our hypotheses. Findings We find that unrelated diversification destroys value; pressure-sensitive Anglo-American owners in a firm’s equity reduce unrelated diversification, whereas pressure-resistant domestic owners increase unrelated diversification; the greater the firm’s free cash flow, the greater the negative effect of pressure-sensitive Anglo-American owners on unrelated diversification. Research limitations/implications We contribute to corporate governance and strategy research by bringing in owners’ institutional origin as a shaper of owner preferences in particular with regards to unrelated diversification. Future research may expand our investigation to more than one home institutional context, and theorize on institutional origin effects beyond the dichotomy between Anglo-American and non-Anglo-American (not oriented toward shareholder value maximization) owners. Practical implications Policy makers, financial analysts, owners, and managers may want to reflect about the implications of ownership structure, as well as promoting or joining corporations with particular ownership configurations. Social implications A shareholder value-destroying strategy, such as unrelated diversification has adverse consequences for society at large, in terms of opportunity costs, that is, resources could be allocated to value-creating activities instead. Promoting an ownership configuration that creates value should contribute to social welfare. Originality/value Owners may not be exclusively driven by shareholder value maximization, but can be influenced by normative beliefs (biases) stemming from the institutional context they originate from.