The Economics and Politics of Corporate Governance in the European Union

Over the last 25 years the term "corporate governance" has entered the lexicon of economists and other students of business. This development has been accompanied by growing interest in differences in institutional structures - like corporate governance systems - across countries. Among the many questions regarding the effects of corporate governance systems that have been examined, one of the most important has been to measure the effects of corporate governance systems on corporate performance somehow measured, or more broadly the economic performance of countries. This paper reviews some of this evidence and takes up the questions of which system is "best," and whether this superiority is likely to lead to a convergence of corporate governance structures over time. With a few exceptions, most studies of the effects of corporate governance institutions treat them as exogenous. This paper also discusses the historical and political determinants of corporate governance institutions.