Corporate Governance and Economic Efficiency: When Do Institutions Matter?

Ronald J. Gilson, Columbia Law School


Corporate governance attracted attention beyond the realm of lawyers and quite specific legal rules because of the growing perception that a link existed between corporate governance and corporate performance: better governance, the hypothesis goes, yields more efficient production. The potential link between governance and institutions was given saliency by the large institutional differences between the corporate governance systems of the three most successful industrial economies: Germany's universal bank centered system; Japan's main bank/cross holdings centered system; and the United State's stock market centered system. This paper examines the hypothesized link between corporate governance and economic efficiency through two lenses that highlight the role of national institutions: path dependency and industrial organization. The goal is a clearer understanding of the role of corporate governance institutions as vehicles of adaptive efficiency.