Manuscript Type: Perspective
Research Question/Issue: In the finance literature theoretical arguments have largely predicted a world-wide convergence towards the Anglo-American model of corporate control. Still, there are few signs that this convergence is underway. This paper explores the reasons for the persistence of the blockholder model by an in-depth examination of a single country – Sweden – where blockholding always has been strong and where it still predominates among public firms. In spite of the fact that we explore the effects of deregulation, globalization and regulatory reform on corporate governance in a single country, a further aim is to shed some light on the wider issue of the world-wide persistence of the blockholder model.
Research Findings/Insights: We find that globalization has undermined the traditional model of corporate control in Sweden. However, there is no sign of expansion of the Anglo-American model of corporate control. A prerequisite for a well-functioning model of dispersed ownership and management control is a certain degree of autonomy/entrenchment for management relative to owners. In Sweden this option is precluded by the corporate law and prevailing social norms. As a result, the Anglo-American model is not viable and blockholder control still predominates among public firms. However, the importance of the stock exchange is declining and there is strong growth of control models outside the stock exchange, notably private equity and foreign ownership.
Theoretical/Academic Implications: In the theoretical argumentation for the inevitability of the Anglo-American model in a mature economy too little attention has been given to the necessary conditions for the viability of management control in the case of dispersed ownership. A rigorous treatment of this question is needed if we want to formulate a relevant theory for the nature of endogenous adjustment of control models in response to globalization.
Practitioner/Policy Implications: Reforms in corporate finance implemented in the European Union are greatly inspired by the UK system. In traditional blockholder governance systems such reforms undermine the basis for blockholder control. If there are strong cultural and/or legal impediments to the emergence of firms with dispersed ownership and management control, institutional convergence could result in an erosion of national stock markets in Europe. The study also provides support for the argument that the efficiency of a particular corporate governance model hinges on the complementarity of several constitutive elements, and therefore an isolated change in a certain element leads to inconsistencies, making the model less efficient.