1. Competition for Corporate Charters: Transatlantic Differences Colin Mayer Saïd Business School University of Oxford

2. The Issues Run to the top or bottom Impediments to competition Externalities Effective competition Outcomes – place of incorporation Share price reactions

3. Percentage of Listed Companies Under Majority Control Source : country chapters in Barca and Becht (2001)

4. Percentage of Voting Blocks Associated With Different Types of Investors in Germany

5. Porsche AG Voting Stock Porsche AG Non-Voting Porsche/Piech Family Voting Pool 100 % 10 %* Source : Hoppenstedt Guide 1999; * estimate 50:50 capital Porsche AG

6. ING Source : Form 20-F 100 % capital 100 % votes ING Administratie Kantoor Certificate Holders 100 % capital 0 % votes ING Groep N.V.

7. Diversity of Financial Systems Banks versus markets Concentrated versus dispersed ownership Stakeholder versus shareholder Common versus civil law Single party versus coalition governments

8. Differences Particularly Pronounced in Europe Significance of banks and stock markets Size of blockholdings Nature of blockholdings Anti-takeover devices Legal and political systems

9. Causes: Investor Protection Financial development required for external financing External financing promotes growth Investor protection necessary condition for financial development Therefore, investor protection necessary condition for growth

10. Evidence from UK There was financial development without investor protection There was external financing without investor protection There wasn’t any more with it Therefore investor protection was neither a necessary nor sufficient condition for growth

11. First Caveat on Policy Simple rules don’t work

12. Consequences: Agency Versus Investor Abuse Agency problem in dispersed systems Minority investor abuse in concentrated ownership system

13. Evidence on Performance in Europe Bank control limited Concentrated owners do not exercise control Independent directors do not intervene Takeovers do not discipline bad management =>Most conventional wisdom is not accurate

14. Second Caveat on Harmonization We don’t know much

15. Systems View Theory: Different forms of information Different types of control Different degrees of commitment Evidence Association of different systems with different economic activities

16. Example 1 External equity financed and skill dependent industries grow particularly rapidly in countries with good information disclosure Particularly closely associated with R&D not fixed investment Relations dependent on stage of economic growth

17. Example 2 VC firms are primarily financed by banks in Germany and Japan Bank financed VC firms invest in later stage activities than individual and corporate funded VC firms

19. Third Caveat on Harmonization There isn’t a best system Different systems serve different purposes

20. Effect of Harmonization Presumes best practice Standardizes on presumed best practice Limits variation Discourages innovation

21. What is Required? Diversity Experimentation Innovation

22. How Should It Be Achieved? Choice not harmonization Enabling not prescriptive regulation Freedom to choose Strong disclosure Harmonization where there are cross-border externalities, as in banking

23. Arguments Against Freedom to Choose European playing-field is too unlevel Distorted by pursuit of private benefits Need to establish pre-conditions for competition Competition inimical to systems based on long-term relations Best system will not emerge through mobility

24. Perfect Competition and Product Differentiation Not seeking system that maximizes shareholder value Difference is that US is competition within a system Europe is selection between systems Providing best environment (financial system, labour markets, legal and political system) for diverse corporate activities Competition and survival of fittest in product markets not corporate form

25. Justification for Freedom of Mobility Allows matching of corporate activities with different systems Exploits not destroys diversity of European systems Through strong disclosure enhances not detracts from financial integration