Financial sector convergence and corporate governance
| Date | 27 February 2007 |
| DOI | https://doi.org/10.1108/13581980710726750 |
| Published date | 27 February 2007 |
| Pages | 8-19 |
| Author | Andy Mullineux |
| Subject Matter | Accounting & finance |
Financial sector convergence and
corporate governance
Andy Mullineux
Birmingham Business School, The University of Birmingham,
Birmingham, UK
Abstract
Purpose – To explore the implications of financial sector convergence for corporate governance
systems.
Design/methodology/approach – Globalisation, regulatory harmonisation and pensions reform
are driving convergence of bank and market oriented systems of corporate finance towards a hybrid
model (“hybridisation”). Given the importance of financial systems in corporate governance, this may
lead to convergence of corporate governance systems; legal traditions notwithstanding.
Findings – The growth in the importance of funds (pension, insurance, mutual, hedge, venture
capital) and the decline in the importance of bank as shareholders has the potential for forcing
convergence in corporate governance if the funds actively use their shareholder (or proxy) voting
rights. Data on financial institution voting patterns is required to test the hypothesis.
Originality/value – Hybridisation is increasingly widely recognised, although not universally
supported by the data. This paper attempts to draw the implication of the hybridisation process for
corporate governance given the breakdown of traditional market and bank-based systems.
Keywords Financial institutions, Economic convergence, Corporate governance
Paper type Viewpoint
Introduction
Since, the early 1970s, there has been substantial liberalisation of the banking sector
and financial innovation. The process has been facilitated by re-regulation of banks
(Mullineux, 1992), which continue to lie at the heart of all financial systems (Mishkin,
2004). Quantitative and qualitative controls and guidance have been largely replaced in
many countries with a price (interest rate) oriented monetary policy and general
prudential regulations (Hermes et al., 1998, 2000). The latter include: risk-related capital
adequacy requirements (the Basel I accord); deposit insurance schemes (also
risk-related in the USA); rules prohibiting overexposure (to individuals, sectors of the
economy, or foreign exchange risk) in order to promote portfolio diversification and
risk reduction; and rules requiring the holding of adequate reserves to assure liquidity
and to make provisions against bad or doubtful debts.
To inform supervision by the authorities, there are confidential disclosure
requirements; and to facilitate monitoring by equity and bond holders, there are public
disclosure and auditing requirements. In addition, banks and other financial
institutions disclose confidential information to credit rating agencies in order to gain
ratings that reflect their credit standing and this in turn determines their cost of capital.
Finally, to aid comparison in the increasingly global environment, accounting and
disclosure rules are in the process of being harmonised and country-based supervisors
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
The research leading to this paper was undertaken with the support of the EU Asia-Link
Programme (Asialink/ASIE/B7-3010/2005/105-139).
JFRC
15,1
8
Journal of Financial Regulation and
Compliance
Vol. 15 No. 1, 2007
pp. 8-19
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710726750
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