The financial system reform in China: the lesson learnt from the global financial crisis

This paper reviews the impact of the global financial crisis on financial system reform in China. Scholars and practitioners have critically questioned the efficiencies of the Anglo- American principal-agent model of corporate governance which promotes shareholder-value maximisation. Should China continue to follow the U.K.-U.S. path in relation to financial reform? This conceptual paper provides an insightful review of the corporate governance literature, regulatory reports and news articles from the financial press. After examining the fundamental limitations of the laissez-faire philosophy that underpins the neo-liberal model of capitalism, the paper considers the risks in opening up China’s financial markets and relaxing monetary and fiscal policies. The paper outlines a critique of shareholder-capitalism in relation to the German team-production model of corporate governance, promoting a “social market economy” styled capitalism. Through such analysis, the paper explores numerous implications for China to consider in terms of developing a new and sustainable corporate governance model. China needs to follow its own financial reform through understanding its particular economy. The global financial crisis might help China rethink the nature of corporate governance, identify its weakness and assess the current reform agenda.

Corporate governance: quo vadis?

Purpose – This paper aims to examine current research trends into corporate governance and to propose a different dynamic, humanistic approach based on individual purpose, values and psychology. Design/methodology/approach – The paper reviews selected literature to analyse the assumptions behind research into corporate governance and uses a multi-disciplinary body of literature to present a different theoretical approach based at the level of the individual rather than the organisation. Findings – The paper shows how the current recommendations of the corporate governance research models could backfire and lead to individual actions that are destructive when implemented in practice. This claim is based on identifying the hidden assumptions behind the principal-agent model in corporate governance, such as the Hobbesian view and the Homo Economicus approach. It argues against the axiomatic view that shareholders are the owners of the company, and it questions the way in which managers are assessed based either on the corporate share price (the shareholder view) or on a confusing set of measures which include more stakeholders (the stakeholder view), and shows how such a yardstick can be demotivating and put the corporation in danger. The paper proposes a humanistic, psychological approach that uses the individual manager as a unit of analysis instead of the corporation and illustrates how such an approach can help to build better governance. Research limitations/implications – The paper's limited scope can only outline a conceptual framework, but does not enter into detailed operationalisation. Practical implications – The paper illustrates the challenges in applying the proposed framework into practice. Originality/value – The paper calls for the use of an alternative unit of analysis, the manager, and for a dynamic and humanistic approach which encompasses the entirety of a person's cognition, including emotional and spiritual values, and which is as of yet usually not to be found in the corporate governance literature.

Corporate governance in Fiji’s Native Land Trust Board

This article examines corporate governance in one of Fiji’s largest trust organisations, the Native Land Trust Board. The principal-agent framework is utilised to analyse the governance issue in this study. An examination of the annual reports and final accounts over the last three decades indicates that poor governance practices by the agent have resulted in the Board not delivering maximum returns to its principal, the landowners.

Agency theory, national culture and management Control Systems

Management control system of an organization is the structured facet of management, the formal vehicle by which the management process is executed. In most organizations, systems exist for planning, organizing, directing, controlling and motivating. Depending on the level of appropriateness and quality of the management control systems, the task of management is either facilitated or hindered. The end goal of a management control system is achieving organizational objectives. Because employees (agents) do not always give their best efforts for achieving organizational objectives, management control systems need to strive for aligning goals of agents (e.g., employees, subordinates) with that of principals (e.g., senior management, owners). Agency theory and its extension, principal agent model, provide insights to the problem of goal congruence and suggest remedies, at least in the Western cultural context. Whether the agency theory presumptions, predictions and prescriptions are universally applicable is an important issue in management. Their validity in different cultural contexts is largely unknown. The available literature to date indicates the possibility that agency theory may not be valid in non-western cultures. However, further empirical research is needed in non-western cultures to shed more light to this issue.

In the service of the society: the labour management practices of an Australian life Insurer to 1940

This article considers the labour management practices in use in the Australian life insurance industry during the inter-war period. Using the Australian Mutual Provident as a case study, it is argued that the specific human resource management practices evolved to deal with separate sets of problems arising from the functions of the life insurance business and the manner in which the principal/agent problem was manifested. The differing nature of work associated with the sales and management of life insurance fostered the development of primary and secondary labour markets in which the benefits flowing to one were superior to those accruing to the other.

The value of information in an agency model with moral hazard

I show that the principal and the agent may each prefer that the principal or the agent has imperfect information about the principal's technology in a principal-agent environment with moral hazard. Principals expend considerable resources on data cumulation and analysis. However, such investments in information acquisition are benecial only if the agent will know that the principal is not ignorant or it allows the principal to implement a dierent action. When the principal is perfectly informed about her technology, the agent prefers to be ignorant. In addition, the value of perfect information for the agency is negative if the principal would implement the same action with either possible technology. I also investigate the dierences between ex ante and ex post contracting, and the ramications of the principal being ignorant or potentially ignorant about the technology. Finally, I determine if the principal's utility varies continuously with the degree of informativeness of the agent about the principal's technology. In this vein, I determine whether the agent's uncertainty may make the principal better o if she has the less informative technology.

Agency theory and accounting research : an overview of some conceptual and empirical issues

This chapter aims to give the reader an overview of agency theory (AT) and its application in accounting research. It delineates the basic assumptions and concepts of AT and identifies the various measures that can be undertaken to minimise agency costs. The chapter also provides a summary of the commonalities and differences across the three major paradigms adopted by accounting researches when using an agency framework: Principal-Agent, Transaction Cost Economics and Positivist (Rochester) model. Further, a review of some recent theoretical and empirical studies on the design of optimal contracts, namely those relating to implicit contracts, multi-agents and multi-period issues is undertaken. Several suggestions are made for future studies adopting an AT-based approach.

Understanding the concept of elasticity in supply chain relationships : an agency theory perspective

The issue of flexibility in supply chains has been receiving heightened attention by scholars and practitioners especially as business environment becoming more turbulent and uncertain. Notwithstanding, one of the important aspects of flexibility – relationship flexibility – which has the potential to proliferate responsiveness and postpone bifurcation in buyer -supplier relationships has not been well understood and researched. Identifying this gap within the literature, this paper proposes a concept of elasticity as an important element of relationship flexibility in supply chains. It is argued that the tolerance threshold of coopering parties in presence of their sudden behaviour change will determine their state of relationship elasticity (i.e. elastic or inelastic). The theoretical development of this paper has been primarily based on review of the literature and insights from agency perspective. It is proposed that relationship governance mechanisms advocated by agency theory has the potential to influence elasticity status of principal agent relationships.

Skilling’s martyrdom: The case for criminalization without incarceration

This paper restricts itself to crimes involving corporate fiduciaries taking bad decisions at the expense of shareholders (corporate governance offenses). The arguments do not apply to fraud as moral wrongfulness exists in that case. To the extent that the actions covered by this paper are blameworthy, I argue that this determination must be disentangled from punishment. Disentanglement of blame from deserts suggests a via-media between criminalization and decriminalization - criminalization without incarceration. Accordingly, the legal process stops at the determination of guilt. The paper advances the criminalization debate because it does not get bogged down in the irreconcilable quarrel about whether corporate governance misbehavior ought to be criminalized for deterrence, retribution, or rehabilitation reasons, and whether it achieves any of these purposes. For these offenses, I argue that whichever theoretical justification underpins the decision to criminalize, imprisonment must not follow conviction. The conviction, despite the lack of incarceration, and the consequential sanctions likely to be imposed on the wrongdoer are sufficient to satisfy the three main justifications for criminalization. In appropriate cases, disgorgement of the offender’s gains will aid in the achievement of these objectives. The model proposed by this paper would yield significant savings by reducing prison costs. It would also allow the state to take advantage of the disproportionate cost/burden of conviction on corporate governance offenders. Owing to the offenders’ high earning potential, deterrence can be achieved at lower cost by conviction alone because the cost of incarceration does not have to be borne by the state whereas the destruction of capacity to generate similar (or indeed, any) income has to be suffered by the offender even without going to jail. If the cost of incarceration is the same for offenders with different earning capacities, imprisoning those with very high earning capacities is a waste of social capital if the objectives sought to be achieved by incarceration can be achieved through other means. Further, the cost of a conviction can be predicted with sufficient certainty in the case of white-collar criminals by looking at their earnings history, and in many cases this can be a significant sum. Unlike the common criminal who may not have a similarly predictable earning capacity and therefore suffer the same extent of monetary loss from a conviction, this loss ought to serve the deterrence function without the need for the state to spend money imprisoning the offender. In addition to loss of earning capacity, clawing back ill-gotten gains significantly adds to disutility. The paper is set out as follows: Part II briefly outlines the scope of the wrongs tackled as stemming from the principal-agent relationship in corporate law, and the inability of the law to overcome effectively problems resulting from the collectivization of the principal in that relationship. In Part III, I argue that conviction without imprisonment is a second-best alternative to decriminalization in cases where the conduct is blameworthy, and results in non-consensual harm. Part IV demonstrates the disutility caused by conviction alone to show that the objectives of criminalization can be satisfied without the need for imprisonment. Part V asserts that consequential sanctions like shaming add to the disutility of conviction. Part VI ties the thesis to Skilling’s conviction for bad business judgment devoid of moral wrongfulness to illustrate the problems with conflating blame and punishment. Part VII concludes.

Ownership concentration and product innovation in Chinese private SMEs

Product innovation is extremely important to the growth, success, and ultimate survival of firms. Although its unique features in small and medium-sized enterprises (SMEs) have gained growing attention in the literature, there is limited knowledge as to how ownership concentration moderates the relationship between product innovation and its determinants. Based upon insights from agency and institutional theories, we examine the moderating effects of ownership concentration on the relationship between product innovation and its key determinants in Chinese SMEs, utilizing a large dataset of 43,728 Chinese firms over the period 2005-2006. We focus on examining the differences between single-owner SMEs, where there is dominant control of one family member, and multiple-owner SMEs, where principal-agent conflicts and principal-principal conflicts are more likely to occur. Our findings indicate that single-owned firms tend to convert research and development into product innovation more efficiently than firms with multiple owners, who are typically better at utilizing external sources of knowledge and human capital.

O seguro garantia no contexto da nova realidade da construção naval brasileira

Vivemos um momento de grande crescimento da construção naval no mundo, que é impulsionado pelo crescimento do comércio entre as nações, em um mundo cada vez mais globalizado. O mesmo se repete no Brasil. O principal objetivo deste trabalho é propor uma metodologia para o cálculo objetivo do valor a ser garantido ao cliente da indústria naval, de modo a criar os incentivos econômicos corretos para os artífices da relação principal-agente. Inicialmente descreverei a Tecnologia da Construção Naval e os problemas econômicos que encontramos, passando a seguir a expor o Mercado Naval, estando aí incluídos o lado consumidor e os produtores de navios, sendo eles nacionais ou internacionais. Finalmente passaremos ao detalhamento da solução de seguro proposta, com a formalização do tipo de seguro, nível de cobertura e monitoramento. Para tal utilizaremos a metodologia de Vector-Autorregression combinada a uma simulação de Monte Carlo. Os resultados encontrados são checados e apontamos os caminhos para aperfeiçoar a metodologia e possíveis usos alternativos para ela.

Desenho de um sistema de metas sociais

Este trabalho discute a racionalidade econômica para o desenvolvimento de um sistema de metas sociais como forma do governo federal aumentar a eficiência na utilização dos recursos sociais transferidos para os municípios. O trabalho desenvolve algumas extensões do modelo de agente-principal incluindo abordagens estáticas com e sem informação imperfeita. Os resultados dos modelos estáticos indicam que o uso de critérios usuais de focalização onde localidades mais pobres recebem mais recursos podem levar a incentivos adversos para a erradicação da pobreza. Demonstramos que transferências incondicionais do governo federal deslocam gastos sociais locais. O trabalho argumenta em favor do uso de contratos onde quanto maior for a melhora no indicador social escolhido, mais recursos o município receberia. A introdução de informação imperfeita neste modelo basicamente gera uma penalidade aos segmentos pobres de áreas onde os governos demonstram ser menos avessos a pobreza. O trabalho também aborda o problema de favoritismo político onde determinados grupos sociais têm maior, ou menor, atenção por parte de governos locais. O resultado é que as políticas sociais acabam privilegiando determinados setores em detrimento de outros. Com o estabelecimento de metas sociais é possível, se não eliminar o problema, ao menos criar incentivos corretos para que os gastos sociais sejam distribuídos de forma mais equânime.

Desenho de um sistema de metas sociais

Este trabalho discute a racionalidade econômica para o desenvolvimento de um sistema de metas sociais como forma do governo federal aumentar a eficiência na utilização dos recursos sociais transferidos para os municípios. O trabalho desenvolve algumas extensões do modelo de agente-principal incluindo abordagens estáticas com e sem informação imperfeita. Os resultados dos modelos estáticos indicam que o uso de critérios usuais de focalização onde localidades mais pobres recebem mais recursos podem levar a incentivos adversos para a erradicação da pobreza. Demonstramos que transferências incondicionais do governo federal deslocam gastos sociais locais. O trabalho argumenta em favor do uso de contratos onde quanto maior for a melhora no indicador social escolhido, mais recursos o município receberia. A introdução de informação imperfeita neste modelo basicamente gera uma penalidade aos segmentos pobres de áreas onde os governos demonstram ser menos avessos a pobreza. O trabalho também aborda o problema de favoritismo político onde determinados grupos sociais têm maior, ou menor, atenção por parte de governos locais. O resultado é que as políticas sociais acabam privilegiando determinados setores em detrimento de outros. Com o estabelecimento de metas sociais é possível, se não eliminar o problema, ao menos criar incentivos corretos para que os gastos sociais sejam distribuídos de forma mais equânime.

Conflitos de interesses entre investidor e administrador de fundos : evidências e mecanismos de controle no Brasil

Trata do problema principal-agent entre investidor e administrador de fundos no Brasil. Aborda as evidências de conflitos de interesses, os efeitos positivos e negativos da competição de mercado, as formas de controle via regulamentação e auto-regulamentação no Brasil e em outros países. Explora os mecanismos utilizados por uma amostra de instituições administradoras de fundos no Brasil para lidar com a questão, com suas vantagens e fraquezas.

Ensaios em opções reais e investimento sob incerteza

Esta tese é composta por três artigos, nos quais são apresentadas extensões e aplicações da Teoria das Opções Reais, todas de interesse para formuladores de política econômica no Brasil. O primeiro faz uma análise original da questão da bioprospecção, ou a exploração da diversidade biológica para fins econômicos. Duas estruturas alternativas para o desenho do mecanismo de concessão, visando o uso sustentável da biodiversidade brasileira, são sugeridas: (i) um modelo de projetos de P&D com maturidade incerta, no qual a intensidade do processo de Poisson que governa o tempo de maturação é explicitamente dependente do nível da biodiversidade no local concedido; (ii) um modelo de Agente-Principal, onde o Estado delega o exercício da opção de investimento à empresa de pesquisa biotecnológica. O segundo artigo avança a analogia entre opções de venda (“put options”) e cotas de importação. Os parâmetros relevantes para apreçar as licenças são agora obtidos endogenamente, a partir da interação entre a firma importadora e os produtores domésticos. Por fim, no terceiro, é feita análise pioneira do mercado paralelo de títulos precatórios no Brasil. Um modelo para a valoração de tais títulos é construído e proposto, tendo por base o arcabouço institucional existente sobre o assunto, tanto no governo central, como nos estados e municípios.