The effectiveness of corporate governance policy in Greece
| Pages | 222-243 |
| DOI | https://doi.org/10.1108/13581981111147865 |
| Date | 26 July 2011 |
| Published date | 26 July 2011 |
| Author | Harilaos Mertzanis |
| Subject Matter | Accounting & finance |
The effectiveness of corporate
governance policy in Greece
Harilaos Mertzanis
HCMC, Athens, Greece
Abstract
Purpose – The effectiveness of corporate governance enforcement is a complex issue requiring the
understanding of the role of institutional factors. The latter may or may not converge towards best
practices, depending upon the extent to which history and politics matter more than purely economic
or efficiency-related considerations for convergence. The appropriateness and effectiveness of
corporate governance enforcement mechanisms differ among market economies and cannot be
attributed to one single factor nor does any such factor have the same significance in all countries as it
depends on the relative state of development of financial intermediation. This paper aims to address
these issues.
Design/methodology/approach – A critique is launched on the hypothesis of legal conformity
used to explain the deviation of corporate governance practices and enforcement efficiency from is
considered as best practice. The critique follows an historical development approach and is
substantiated with some new empirical evidence of ownership structures and market views.
Findings – Empirical evidence on ownership structures and on the market views regarding the
effectiveness of corporate governance legislation shows that for an understanding of the relationship
between financial intermediation and corporate governance broader institutional influences must be
taken into consideration.
Research limitations/implications – The analysis of empirical evidence needs detailed expansion
and proper association with institutional elements to provide a more comprehensive understanding of
corporate governance enforcement efficiency.
Practical implications – The exercise of corporate governance enforcement is an interactive
process that goes beyond the role of legal rules and must combine an optimal set of private and public
mechanisms properly tailored to each corporate governance regime.
Originality/value – New empirical evidence is provided on ownership structures and on the market
view regarding the effectiveness of corporate governance legislation and a broader account is provided
on institutional setting for understanding corporate governance policy.
Keywords Corporate governance, Ownership,Institutions, Greece
Paper type Research paper
1. Introduction
The publication of the OECD Principle of Corporate Governance (1999, 2003) and the
Principles of Corporate Governance in Greece (1999) in the late 1990s led to fruitful
debates on corporate governance in Greece, which however inclined at that time to view
corporate transparency and accountability as rather “apocryphal” matters (Avlonitis
and Mertzanis, 2002). Since then, the domestic implementation of a large number of EU
directives, regulations and communications, the rise of diversified capital needs of Greek
corporations within the new international environ ment of intensified financial
competition and the gradual transformation of domestic corporate culture brought
significant change in co rporate relations and beh avior. Corporate govern ance
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JEL classification – K22, K42, G34
JFRC
19,3
222
Journal of Financial Regulation and
Compliance
Vol. 19 No. 3, 2011
pp. 222-243
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581981111147865
problems have appeared during the past decade but were not associated with major
scandals threatening the integrity of the Greek market. Most corporate governance
problems and conflicts were depicted and dealt with by regulation and auditing.
However, these changes and their market impact have not adequately been assessed.
Public debate on corporate governance in Greece has been stalled.
In a recent paper in this journal, Lazaridis (2010) raises the issue of feasible
and effective enforcement of corporate governance legislation in Greece. Drawing on
relevant studies on corporate ownership and governance structures, Lazaridis argues
that Greece is safely classified among the Continental European corporate governance
pattern characterized by concentrated ownership, a dominant role for majority
shareholders and a weak market for corporate control. He then argues that the
provisions of the law 3016/2002, an important legislative initiative of corporate
governance reform in Greece, are a mimic of SOX provisions in the USA aiming at
encouraging capital inflows and that broadly speaking the former law has had no. effect
on improving the fundamental elements of the Greek corporate environment. On account
of divergent views as to the need for and efficiency of corporate governance reform,
Lazaridis seems to favor legislative initiatives based on a conviction that the law should
be simple, direct, easy to apply, holistic and fair as well as innovative in order to
guarantee market order and fairness and ultimately safeguard market stability.
In assessing the current corporate governance regime in Greece, Lazaridis takes the
view that the corporate governance framework is confined in the voluntary Principles
of Corporate Governance in Greece (1999) and the law 3016/2002, which is deemed to be
ineffective. On the basis of econometric tests, based on formal models implicitly in the
tradition of law and finance analysis, he argues that performance modeling has not
produced good fitness indicators that is standard organizational and decision-m aking
factors are shown not to be statistically significant, which is interpreted as a factor
distinguishing Greece from Anglo-Saxon countries. Thus:
[...] while the relation of performance, CG and other factors of organizational, power and
decision-making structure of firms have been well documented theoretically and empirically
for the Anglo-Saxon countries or countries that have the same characteristics with them.
in Greece “[...] financial performance of firms seems to be unrelated to the previously
mentioned factors” (p. 378).
These findings lead him to believe that product market competition and
macroeconomic factors are the most probable factors explaining financial
performance of listed companies in Greece.
Lazaridis argues that the relative underperformance of Greek firms is the result of
inefficient enforcement. He postulates that:
[...] all initiatives(Capital MarketCommission Principles and Guidelines,Legal (law 3016/2002)
and voluntary by the Hellenic Federation of Enterprises) could not convince stakeholders to
change theirattitude and perspective ontheir role, scope and range of activityand intervention.
Minority shareholders remain, in reality, without any option, but the one of loyalty. Lack of
capital market mechanisms and liquidity, as well as the unquestioned dominance of major
shareholders,deprives minority shareholders fromany other option (exit or voice) (p. 378).
Moreover, “[...] the other interesting point is that executive remuneration is not
dependent on performance, power and control structure, monitor efficiency and
incentive plans”. Such inefficiency is moreover a domestic feature, since:
Effectiveness
of corporate
governance
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