How Much Do You Know About Corporate Governance?

The correct answer is "All of the above are correct." This means that all three statements mentioned in the options are true. The first statement states that holding companies and industrial companies are the most important type of large shareholder in continental Europe. The second statement mentions that control by banks is relatively low in continental Europe. The third statement suggests that apart from the UK and the Netherlands, institutional investors are relatively unimportant. As all three statements are true, the correct answer is that all of the above are correct.

The main corporate governance problem outside the UK and the USA is the expropriation of the minority shareholders by the large, controlling shareholder. This refers to the situation where a majority shareholder, who holds a significant amount of voting power, takes advantage of their position to benefit themselves at the expense of the minority shareholders. This can be done through actions such as siphoning off company assets, manipulating financial statements, or engaging in self-dealing transactions. This problem is particularly prevalent in countries with weak legal and regulatory frameworks, where there is limited protection for minority shareholders.

Contractual corporate governance refers to the methods and strategies that companies can utilize to enhance their corporate governance practices beyond the requirements set by their country's standards. This involves implementing additional measures and mechanisms to ensure transparency, accountability, and fairness in decision-making processes, as well as protecting the interests of shareholders. It may include adopting best practices, establishing independent oversight committees, and implementing stricter regulations and guidelines. By going beyond the minimum requirements, firms can strengthen their corporate governance framework and build trust with stakeholders, ultimately leading to better overall performance and long-term sustainability.

The typical firm from continental Europe and most of Asia is characterized by dispersed ownership and strong control. This means that ownership of the firm is spread among multiple shareholders, rather than being concentrated in the hands of a few. However, despite the dispersed ownership, there is still strong control exerted over the firm, likely through mechanisms such as strong management and governance structures. This combination allows for a balance between ownership and control, ensuring that decision-making power is not overly concentrated while still maintaining effective control over the firm's operations.

The answer "No, the existing evidence is as yet inconclusive" is the correct answer because the statement in the question suggests that the evidence on the effectiveness of non-executive/ outside directors is conclusive, but the correct answer contradicts this by stating that the existing evidence is still inconclusive. This means that there is no definitive conclusion on whether non-executives increase firm value and performance.