Preamble
1. Alberto Giovannini, Colin Mayer, Stefano Micossi, Carmine Di Noia, Marco Onado, Marco Pagano, and Andrea Polo (2015), ‘Restarting European long-term investment finance: A green paper discussion document’, Centre for Economic Policy Research: London. Colin Mayer, Stefano Micossi, Marco Onada, Marco Pagano, and Andrea Polo (2018),
Finance and Investment: The Case of Europe, Oxford: Oxford University Press.
2. Big Innovation Centre (2016),
Purposeful Company: Interim Report, London: Big Innovation Centre. Big Innovation Centre (2017),
Purposeful Company: Policy Report, London: Big Innovation Centre.
3. John Armour, Dan Awrey, Paul Davies, Luca Enriques, Jeffrey Gordon, Colin Mayer, and Jennifer Payne (2016),
Principles of Financial Regulation, Oxford: Oxford University Press.
4. ‘In pursuit of inclusive capitalism, business and approaches to systemic change’, Said Business School, University of Oxford, 2016.
Preface
1. Milton Friedman (1970), ‘The social responsibility of business is to increase its profits’,
The New York Times Magazine, 13 September.
2. Milton Friedman (1962),
Capitalism and Freedom, Chicago, IL: University of Chicago Press.
3. Friedman (1970), ‘The social responsibility of business is to increase its profits’.
5. UNU-IHDP and UNEP (2014),
Inclusive Wealth Report 2014: Measuring Progress Towards Sustainability, Cambridge: Cambridge University Press.
6. Victor Frankl (1959—English translation),
Man’s Search for Meaning, Boston, MA: Beacon, and (1946—original German)
Trotzdem Ja zum Leben sagen: Ein Psychologe erlebt das Konzentrationslager, Austria: Verlag für Jugend und Volk.
7. Adrian Cadbury (1992),
Report of the Committee on the Financial Aspects of Corporate Governance, London: Gee.
8. Colin Mayer (2015), ‘Big Bang: New beginning or beginning of the end?’
Oxford Review of Economic Policy, 31, 186–98.
9. Colin Mayer (1986), ‘Financial innovation: Curse or blessing?’
Oxford Review of Economic Policy, 2, 1–19.
Part 1
1. William Shakespeare ‘All the World’s a Stage’,
As You Like It, Act II, scene vii.
Chapter 1
1. This is an amended version of Colin Mayer (2016), ‘Reinventing the corporation’,
Journal of the British Academy, 4, 53–72.
2. Peter Goodridge, Gavin Wallis, and Jonathan Haskel (2014), ‘UK investment in intangible assets’, Nesta Working Paper 14/02 and Leonard Nakamura (2009), ‘Intangible assets and national income accounting: Measuring a scientific revolution’, Federal Reserve Bank of Philadelphia, Working Paper No. 09–11.
3. Adam Smith (1776),
An Inquiry into the Nature and Causes of the Wealth of Nations, London: Strahan and Cadell, Book V,
Chapter 1.
4. Alfred Marshall (1892),
Elements of Economics of Industry, London: Macmillan, Book IV, Chapter 12.
5. Ronald Coase (1937), ‘The nature of the firm’,
Economica, 4, 386–405.
6. See, for example, Armen Alchian and Harold Demsetz (1972), ‘Production, information costs and economic organization’,
American Economic Review, 62, 777–95, and Michael Jensen and William Meckling (1976), ‘Theory of the firm: Managerial behavior, agency costs and ownership structure’,
Journal of Financial Economics, 3, 305–60.
7. Frank Easterbrook and Daniel Fischel (1981), ‘The proper role of a target’s management in responding to a tender offer’,
Harvard Law Review, 94, 1161–204, and Henry Hansmann and Reinier Kraakman (2001), ‘The end of history for corporate law,’
Georgetown Law Journal, 89, 439–68.
8. Eugene Fama and Michael Jensen (1983), ‘Separation of ownership and control’,
Journal of Law and Economics, 26, 301–25.
9. The Economist, 7 February 2015.
10. Jensen and Meckling (1976), ‘Theory of the firm’.
11. This quotation is often attributed to Arthur Schopenhauer, but there is no known citation to it (see Jeffrey Shallit (2005), ‘Science, pseudoscience, and the three stages of truth’, mimeo, Department of Computer Science, University of Waterloo,
https://cs.uwaterloo.ca/~shallit/Papers/stages.pdf).
12. Christa Borsting, Johan Kuhn, Thomas Poulsen, and Steen Thomsen (2015), ‘Industrial foundations as long-term owners’, Center for Corporate Governance, Copenhagen Business School.
13. Adam Smith (1776),
Wealth of Nations.
14. Adam Smith (1759),
The Theory of Moral Sentiments, London: Andrew Millar.
Chapter 2
1. This section draws on work with Yun Hee Lee, Denis Noble, and David Vines at Balliol College, Oxford—Yun Hee Lee, Colin Mayer, Denis Noble, and David Vines (2017), ‘Fusion through penetration, group sorting, and team formation: The implications of evolutionary biology for the study of cooperation in economics and management’, Oxford University Working Paper.
For excellent discussions of many of the biological ideas in this chapter, see Denis Noble (2008),
The Music of Life: Biology Beyond Genes, Oxford: Oxford University Press and Denis Noble (2016),
Dance to the Tune of Life: Biological Relativity, Cambridge: Cambridge University Press.
2. Marilyn Roossinck (2008), ‘Symbiosis, mutualism and symbiogensis’ in Marilyn Roossinck (ed.),
Plant Virus Evolution, Berlin: Springer, pp. 157–61.
3. Thomas Nagel (2012),
Mind and Cosmos: Why the Materialist Neo-Darwinian Conception of Nature Is Almost Certainly False, Oxford: Oxford University Press.
4. This section is based on Colin Mayer (2017), ‘Comment on “Putting integrity into finance: A purely positive approach (by Werner Erhard and Michael Jensen)”’,
Capitalism and Society, 12, Article 4. For a discussion of the role of identity, belonging, obligations, and responsibilities in capitalist systems, see Paul Collier (2018),
The Future of Capitalism: Facing the New Anxieties, London and New York: Penguin and HarperCollins.
5. See, for example, Gabriele Taylor (1981), ‘Integrity’,
Proceedings of the Aristotelian Society, 55, 143–59.
6. John Smart and Bernard Williams (1973),
Utilitarianism: For and Against, Cambridge: Cambridge University Press.
7. George Akerlof and Robert Shiller (2015),
Phishing for Phools: The Economics of Manipulation and Deception, Princeton, NJ: Princeton University Press.
9. This section is based on Colin Mayer (2018), ‘Foreword’ to Gay Haskins, Lalit Johri, and Michael Thomas (eds),
Kindness in Leadership, Abingdon: Routledge.
Chapter 3
1. Uleikw Malmendier (2009), ‘Law and finance “at the origin”’,
Journal of Economic Literature, 47, 1076–108.
2. Polybius, Historiae 6.17.3–4 cited in Malmendier (2009), ‘Law and finance’
.
3. William Burdick (1938),
The Principles of Roman Law and their Relation to Modern Law, Rochester, NY: The Lawyers Cooperative Publishing Co., p. 277.
4. Frederick Pollock and Frederic Maitland (1895),
History of English Law before the Time of Edward I, Vol. 1, Cambridge: Cambridge University Press, p. 469.
5. Jacques Cujaz (1595),
Opera Omnia: Opera Quae de Jure Facit, Vol. II, Frankfurt: Andreas Wechel Erben, cited in Malmendier (2009), ‘Law and finance’
.
6. John Davis (1905),
Corporations: Study of the Origin and Development of Great Business Combinations and of Their Relation to the Authority of the State, New York: Putnam.
7. Barbara Moe (2003),
The Charter of the Massachusetts Bay Colony, New York: Rosen.
8. Harold Berman (1983),
Law and Revolution: The Formation of the Western Legal Tradition, Cambridge, MA: Harvard University Press.
9. Larry Siedentop (2014),
Inventing the Individual: The Origins of Western Liberalism, London: Allen Lane, p. 243.
11. Berman (1983),
Law and Revolution, p. 219.
12. Frederic Maitland (1900), ‘The corporation sole’,
Law Quarterly Review, 16, 335–54.
13. David Runciman and Magnus Ryan (2003),
Maitland: State, Trust and Corporation, Cambridge: Cambridge University Press.
14. The corporation sole has been discussed in other contexts, for example the monarchy, to distinguish the permanence of the office of the monarchy, from the transience of the officeholder, the monarch: ‘The King is dead; long live the King.’ See Frederic Maitland (1901), ‘The Crown as corporation’,
Law Quarterly Review, 17, 131–46.
15. Chibili Mallat (2007),
Introduction to Middle Eastern Law, Oxford: Oxford University Press.
16. Cornelia Wunsch (2010), ‘Neo-Babylonian entrepreneurs’ in David Landes, Joel Mokyr, and William Baumol (eds),
The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times, Princeton, NJ: Princeton University Press, pp. 40–61.
17. Subhi Labib (1969), ‘Capitalism in medieval Islam’,
Journal of Economic History, 29, 79–96.
18. Abraham Udovitch (1962), ‘At the origins of the Western C
ommenda: Islam, Israel, Byzantium?’
Speculum, 37, 198–207.
19. Timur Kuran (2011),
The Long Divergence: How Islamic Law Held Back the Middle East, Princeton, NJ: Princeton University Press.
20. Udovitch (1962), ‘At the origins of the Western C
ommenda’.
21. Angus Maddison (2001),
The World Economy: A Millennial Perspective, Paris: OECD.
22. Alfred Lieber (1968), ‘Eastern business practices and medieval European commerce’,
Economic History Review, 21, 230–43.
23. Raymond de Roover (1963),
The Rise and Decline of the Medici Bank, Cambridge, MA: Harvard University Press, p. 372.
24. William Scott (1912),
The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, Vol. 1: The General Development of the Joint-Stock System to 1720, Cambridge: Cambridge University Press, p. 3.
25. Clive Schmitthoff (1939), ‘The origins of the joint-stock company’,
University of Toronto Law Journal, 3, 74–96.
26. Samuel Williston (1888), ‘History of the law of business corporations before 1800’,
Harvard Law Review, 2, 111.
27. Philip Stern (2011),
The Company-State: Corporate Sovereignty and the Early Modern Foundations of the British Empire in India, Oxford: Oxford University Press, pp. 25–6.
41. Paul Mahoney (2000), ‘Contract or concession? An essay on the history of corporate law’,
Georgia Law Review, 34, 873–93.
42. Armand Dubois (1938),
The English Business Company after the Bubble Act, 1720–1800, New York: Commonwealth Fund, 216, quoted in Mahoney (2000), ‘Contract or concession?’ p. 884.
43. Adam Smith (1776),
An Inquiry into the Nature and Causes of the Wealth of Nations, Vol. I, ed. R. H. Campbell and A. S. Skinner, vol. II of the Glasgow Edition of the Works and Correspondence of Adam Smith, Indianapolis, IN: Liberty Fund, 1981, pp. 246–7.
44. Smith, (1776),
Wealth of Nations, p. 233.
45. Scott (1912),
The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, p. 461.
46. Pit Dehing and Marjolein’t Hart (1997), ‘Linking the fortunes: Currency and banking, 1550–1800’, in Marjolein’t Hart, Joost Jonker, and Jan van Zanden (eds),
A Financial History of the Netherlands, Cambridge: Cambridge University Press, pp. 37–63.
47. Edwin Hunt and James Murray (1999),
A History of Business in Medieval Europe: 1200–1500, Cambridge: Cambridge University Press.
Chapter 4
1. Cited in Deborah Cadbury (2010),
Chocolate Wars—From Cadbury to Kraft: 220 Years of Sweet Success and Bitter Rivalry, London: Harper Collins, p. 176.
3. John Ruskin first published ‘Unto This’ in 1860 as a series of articles in
Cornhill Magazine. In 1908 Gandhi serialized a nine-part paraphrase of Ruskin’s book in Gujarati in
Indian Opinion and later published it as a pamphlet under the title
Sarvodaya (The Welfare of All).
4. Cadbury (2010),
Chocolate Wars, p. 213.
6. Julian Franks, Colin Mayer, and Paolo Volpin (2012), ‘The life-cycle of family ownership’,
Review of Financial Studies, 25, 1687–712.
7. Harold Meyers (1967), ‘The sweet secret world of Forrest Mars’,
Fortune, reproduced from the Fortune Archives by Fortune Editors, 31 March 2013.
9. This is extensively documented in Julian Franks, Colin Mayer, and Stefano Rossi (2009), ‘Ownership, evolution and regulation’,
Review of Financial Studies, 22, 4009–56, and Julian Franks, Colin Mayer, and Stefano Rossi (2005), ‘Spending less time with the family: The decline of family ownership in the United Kingdom’, in Randall Morck (ed.),
A History of Corporate Governance Around the World: Family Business Groups to Professional Managers, Chicago, IL: Chicago University Press, pp. 581–612.
10. Zohar Goshen and Assaf Hamdani (2016), ‘Corporate control and idiosyncratic vision’,
Yale Law Journal, 125, 560–617.
11. Meyers (1967), ‘The sweet secret world of Forrest Mars’.
12. Cadbury (2010),
Chocolate Wars, pp. 205–6.
13. Kee-Hong Bae, Jun-Koo Kang, and Jin-Mo Kim (2002), ‘Tunneling or value added? Evidence from mergers by Korean business groups’,
Journal of Finance, 57, 2695–740; Jae-Seung Baek, Jun-Koo Kang, and Inmoo Lee (2006), ‘Business groups and tunneling: Evidence from private securities offerings by Korean chaebols’,
Journal of Finance, 61, 2415–49; Marianne Bertrand, Paras Mehta, and Sendhil Mullainathan (2002), ‘Ferreting out tunneling: An application to Indian business groups’,
Quarterly Journal of Economics, 117, 121–48; Yan-Leung Cheung, Raghavendra Rau, and Aris Stouraitis (2006), ‘Tunneling, propping, and expropriation: Evidence from connected party transactions in Hong Kong’,
Journal of Financial Economics, 82, 343–86.
14. A more detailed description of the history of ownership discussed in the next four sections can be found in Julian Franks and Colin Mayer (2018), ‘The evolution of ownership and control around the world: The changing face of capitalism’, in Benjamin Hermalin and Michael Weisbach (eds),
Handbook of Corporate Governance, Amsterdam: Elsevier. On this section, see also Franks et al. (2005), ‘Spending less time with the family’ and (2009), ‘Ownership, evolution and regulation’.
15. Frederick Lavington (1921),
The English Capital Market, London: Methuen, pp. 133 and 124.
18. Julian Franks, Colin Mayer, and Hannes Wagner (2006), ‘The origins of the German corporation: Finance, ownership and control’,
Review of Finance, 10(4), 537–85.
19. Lavington (1921),
The English Capital Market.
20. Julian Franks, Colin Mayer, and Hideaki Miyajima (2014), ‘The ownership of Japanese corporations in the 20th century’,
Review of Financial Studies, 27, 2580–625.
21. Marco Becht and Bradford DeLong (2005). ‘Why has there been so little block holding in America?’ in Randell Morck (ed.),
A History of Corporate Governance around the World: Family Business Groups to Professional Managers, Chicago, IL: University of Chicago Press; Gardiner Means (1930), ‘The diffusion of stock ownership in the U.S.’,
Quarterly Journal of Economics, 44, 561−600.
22. A business group is defined as three publicly listed companies under common control through ownership; see Eugene Kandel, Konstantin Kosenko, Randall Morck, and Yishay Yafeh (2013), ‘The great pyramids of America: A revised history of US business groups, corporate ownership, and regulation, 1930–1950’, Working Paper, Hebrew University of Jerusalem.
23. Another important piece of legislation was the 1935 Public Utilities Holding Companies Act (PUHCA). The Act required the Securities and Exchange
Commission (SEC) to regulate the activities of utilities and in particular to restrict the use of holding-companies structures.
25. Julian Franks, Colin Mayer, and Hannes Wagner (2016), ‘Survival of the weakest: Flourishing family firms in Germany’,
Journal of Applied Corporate Finance, 27, 36–44.
26. See, for example, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1997), ‘Legal determinants of external finance’,
Journal of Finance, 52(3), 1131–50; Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1998), ‘Law and finance’,
Journal of Political Economy, 106(6), 1113–55; Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (1999), ‘The quality of government’,
Journal of Law, Economics, and Organization, 15(1), 222–79; and Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer (2000), ‘Investor protection and corporate governance’,
Journal of Financial Economics, 58(1–2), 3–27.
27. A phrase controversially ascribed to Napoleon Bonaparte.
28. ‘Is this the nicest place to live in Britain?’ BBC News, 9 July 2003.
29. Rick Groves, Alan Middleton, Alan Murie, and Kevin Broughton (2003), ‘Neighbourhoods that work: A study of the Bournville estate, Birmingham’, Bristol: The Policy Press for the Joseph Rowntree Foundation.
Chapter 5
1. Leo Strine (2017), ‘Corporate power is corporate purpose: Evidence from my hometown’,
Oxford Review of Economic Policy, 33(2), 176–87.
3. John Coffee (2017), ‘Preserving the corporate superego in a time of stress: An essay on ethics and economics’,
Oxford Review of Economic Policy, 33(2), 221–56.
4. Strine (2017), ‘Corporate power is corporate purpose’.
5. Financial Reporting Council (2016),
The UK Corporate Governance Code, London: Financial Reporting Council, p. 3.
6. Alan Greenspan (1998), ‘Testimony before the Committee on Banking and Financial Services, US House of Representatives’, January; IMF (1997),
World Economic Outlook: Crisis in Asia, Regional and Global Implication—Interim Assessment, Washington DC; and IMF (1998) ‘Michel Camdessus’ address to Transparency International: “Good governance has become essential in promoting growth and stability”’,
IMF Survey, p. 27.
7. A. Beltratti and R. Stulz (2012), ‘The credit crisis around the globe: Why did some banks perform better?’
Journal of Financial Economics, 105(1), 1–17; D. Erken, M. Hung, and P. Matos (2012), ‘Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide’,
Journal of Corporate Finance, 18(2), 389–411; and B. Minton, J. Taillard, and R. Williamson (2014), ‘Financial expertise of the board, risk taking, and
performance: Evidence from bank holding companies’,
Journal of Financial and Quantitative Analysis, 49(2), 351–80
.
8. George Akerlof and Robert Shiller (2015), Phishing for Phools: The Economics of Manipulation and Deception, Princeton, NJ: Princeton University Press.
9. John Storey and Graeme Salaman (2017), ‘Employee ownership and the drive to do business responsibly: A study of the John Lewis Partnership’,
Oxford Review of Economic Policy, 33(2), 339–54.
11. Kate Roll (2016), ‘Maua programme: Bettering lives through the micro-distribution of Wrigley products’, Mutuality in Business Working Paper 4, Said Business School, University of Oxford; and Bruno Roche and Jay Jakub (2017),
Completing Capitalism: Heal Business to Heal the World, Oakland, CA: Berrett-Koehler.
12. Dominic Barton (2017), ‘Refocusing capitalism on the long term: Ownership and trust across the investment value chain’,
Oxford Review of Economic Policy, 33(2), 188–200.
13. See Sophie Nachemson-Ekwall and Colin Mayer (2017), ‘Nomination committees and corporate governance: Lessons from Sweden and the UK’, mimeo.
14. C. Børsting and Steen Thomsen (2017), ‘Foundation ownership, reputation, and labour’,
Oxford Review of Economic Policy, 33(2), 317–38.
15. For an excellent survey of the literature see Henri Servaes and Ane Tamayo (2017), ‘The role of social capital in corporations’,
Oxford Review of Economic Policy, 33(2), 201–20.
16. See, for example, Robert Eccles, Ioannis Ioannou, and George Serafeim (2014), ‘The impact of corporate sustainability on organizational processes and performance’,
Management Science, 60(11), 2835–57.
17. Harrison Hong and Marcin Kacperczyk (2009), ‘The price of sin: The effects of social norms on markets’,
Journal of Financial Economics, 93, 15–36.
18. S. El Ghoul, O. Guedhami, C. Kwok, and D. Mishra (2011), ‘Does corporate social responsibility affect the cost of capital?’
Journal of Banking and Finance, 35, 2388–406; Rui Albuquerque, A. Durnev, and Yrjo Koskinen (2015), ‘Corporate social responsibility and firm risk: Theory and empirical evidence’, European Corporate Governance Institute (ECGI) Finance Working Paper No. 359; C. Flammer (2015), ‘Does corporate social responsibility lead to superior financial performance? A regression discontinuity approach’,
Management Science, 61, 2549–68; and K. Lins, H. Servaes, and A. Tamayo (2016), ‘Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis’, European Corporate Governance Institute (ECGI) Finance Working Paper No. 446.
19. Eccles et al. (2014), ‘The impact of corporate sustainability’.
20. C. Fornell, S. Mithas, F. Morgeson III, and M. Krishnan (2006), ‘Customer satisfaction and stock prices: High returns, low risk’,
Journal of Marketing, 70, 3–14.
21. J. Derwall, N. Guenster, R. Bauer, and K. Koedijk (2005), ‘The eco-efficiency premium puzzle’,
Financial Analysts Journal, 61, 51–63.
22. G. Friede, T. Busch, and A. Bassen (2015), ‘ESG and financial performance: Aggregated evidence from more than 2000 empirical studies’,
Journal of Sustainable Finance and Investment, 5, 210–33.
23. M. Khan, G. Serafeim, and A. Yoon (2015), ‘Corporate sustainability: First evidence on materiality’,
The Accounting Review, 91(6), 1697–724.
24. X. Deng, J. Kang, and B. Low (2013), ‘Corporate social responsibility and stakeholder value maximization: Evidence from mergers’,
Journal of Financial Economics, 110, 87–109.
25. Alex Edmans (2011), ‘Does the stock market fully value intangibles? Employee satisfaction and equity prices’,
Journal of Financial Economics, 101, 621–40; Alex Edmans (2012), ‘The link between job satisfaction and firm value, with implications for corporate social responsibility’,
Academy of Management Perspectives, 26, 1–19.
26. L. Guiso, P. Sapienza, and L. Zingales (2015), ‘The value of corporate culture’,
Journal of Financial Economics, 117, 60–76.
27. N. Bloom, R. Sadun, and J. Van Reenen (2012), ‘The organization of firms across countries’,
Quarterly Journal of Economics, 127, 1663–705.
28. Matthew Baron, Jonathan Brogaard, Björn Hagströmer, and Andrei Kirilenko (forthcoming), ‘Risk and return in high-frequency trading’,
Journal of Financial and Quantitative Analysis.
29. Julian Franks, Colin Mayer, and Hannes Wagner (2016), ‘Survival of the weakest: Flourishing family firms in Germany’, Journal of Applied Corporate Finance, 27, 36–44.
Chapter 6
1. The issues in this chapter are discussed further in Colin Mayer (2013), ‘Unnatural capital accounting’, Natural Capital Committee Discussion Paper; Colin Mayer (2016), ‘Introduction to the Natural Capital Committee’s corporate natural capital accounting project’, in ICAEW,
Rethinking Capitals: Series 2—Natural Capital, London: ICAEW; and Richard Barker and Colin Mayer (2017), ‘How should a “sustainable corporation” account for natural capital?’ Working Paper, Said Business School, University of Oxford.
2. Inclusive Wealth Report (2012), ‘Measuring progress towards sustainability’, Cambridge: Cambridge University Press.
3. Office for National Statistics (2014), ‘UK natural capital: Initial and partial monetary estimates’.
Chapter 7
1. This chapter draws extensively on Colin Mayer (2015), ‘Conceiving corporate commitment’, in Jennifer Hill and Randall Thomas (eds),
The Research Handbook on Shareholder Power, Cheltenham: Edward Elgar, pp. 211–30.
2. There are extensive discussions of trust in Francis Fukuyama (1995),
Trust: The Social Virtues and the Creation of Prosperity, New York: Free Press; Russell
Hardin (2006),
Trust, Cambridge: Polity Press. Martin Hollis (1998),
Trust within Reason, Cambridge: Cambridge University Press; and Piotr Sztompka (1999),
Trust: A Sociological Theory, Cambridge: Cambridge University Press. Trust in economics is discussed in the context of a number of related subjects, such as institutional economics (George Akerlof (1970), ‘The market for “lemons”: Qualitative uncertainty and the market mechanism’,
Quarterly Journal of Economics, 84, 488–500, and Kenneth Arrow (1974),
The Limits of Organization, New York: W. W. Norton), game theory (Partha Dasgupta (1988), ‘Trust as a commodity’, in Diego Gambetta (ed.),
Trust: Making and Breaking Cooperative Relations, Oxford: Basil Blackwell, pp. 49–72), and transaction costs (Oliver Williamson (2010), ‘Transaction cost economics: The natural progression’,
American Economic Review, 100, 673–90).
3. See Stewart Macaulay (1963), ‘Non-contractual relations in business: A preliminary study’,
American Sociological Review, 28, 55–67, for an early discussion of the importance of non-legally binding commitments. See also Isabelle Brocas, Juan Carrillo, and Mathias Dewatripont (2004), ‘Commitment devices under self-control problems: An overview’, in Isabelle Brocas and Juan Carrillo (eds),
The Psychology of Economic Decisions,
Vol. 2: Reasons and Choices, Oxford: Oxford University Press, pp. 49–66.
4. John Mill (1859),
On Liberty, London: Longman, Roberts and Green.
5. Sandy Grossman and Oliver Hart (1986), ‘The costs and benefits of ownership: A theory of vertical and lateral integration’,
Journal of Political Economy, 94, 691–719, and Oliver Hart (1995),
Firms, Contracts, and Financial Structure, Oxford: Oxford University Press.
6. See, for example, Roger Crisp and Michael Slote (1997),
Virtue Ethics, Oxford: Oxford University Press and Michael Slote (2000), ‘Virtue ethics’, in H. LaFollette (ed.),
The Blackwell Guide to Ethical Theory, Oxford: Blackwell, pp. 325–47.
7. Margaret Blair and Lynn Stout (2001), ‘Trust, trustworthiness, and the behavioural foundations of corporate law’,
University of Pennsylvania Law Review, 149, 1735–51, argue for internalized trust based on expectations of intrinsic trustworthiness. Oliver Williamson (1993), ‘Calculativeness, trust, and economic organization’,
Journal of Law and Economics, 36, 454–86, suggests that trust relates to non-calculative personal relations.
8. See Edwin Hunt and James Murray (1999),
A History of Business in Medieval Europe: 1200–1500, Cambridge: Cambridge University Press; Robert Lopez (1971),
The Commercial Revolution of the Middle Ages, 950–1350, Englewood Cliffs, NJ: Prentice Hall; and William Scott (1912), The Constitution and Finance of English, Scottish and Irish Joint-Stock Companies to 1720, Vol. 1: The General Development of the Join-Stock System to 1720, Cambridge: Cambridge University Press.
9. Armen Alchian and Harold Demsetz (1972), ‘Production, information costs, and economic organization’,
American Economic Review, 62, 777–95, and Michael Jensen and William Meckling (1976), ‘Theory of the firm:
Managerial behavior, agency costs, and ownership structure’,
Journal of Financial Economics, 3, 305–60.
10. For a discussion of this see Eric Orts (2013),
Business Persons: A Legal Theory of the Firm, Oxford: Oxford University Press.
11. Paul Davies and Sarah Worthington (2012),
Principles of Modern Company Law, 9th edition, London: Sweet and Maxwell.
12. Felicia Resor (2012), ‘Benefit corporation legislation’,
Wyoming Law Review, 12, 91–113, and Frederick Alexander (2018),
Benefit Corporation Law and Governance: Pursuing Profit with Purpose, forthcoming.
13. Robert Hamilton (1995), ‘Registered limited liability partnerships: Present at birth (nearly)’,
Colorado Law Review, 66, 1065–9.
14. See Big Innovation Centre (2017), ‘Purposeful company: Policy report’, London: Big Innovation Centre, Section 4.1, for further details about these alternative models.
15. Gregory Alexander (2013), ‘Ownership and obligations: The human flourishing theory of property’,
Hong Kong Law Journal, 43, 451.
16. See John Coffee (1989), ‘The mandatory/enabling balance in corporate law: An essay on the judicial role’,
Columbia Law Review, 89, 1618–91, and Jeffrey Gordon (1989), ‘The mandatory structure of corporate law’,
Columbia Law Review, 89, 1549.
17. See Edward Rock and Michael Wachter (2001), ‘Islands of conscious power: Law, norms, and the self-governing corporation’,
University of Pennsylvania Law Review, 148, 1622, for arguments for non-legally binding governance arrangements. For a discussion of commitment in investment banking in the context of a hierarchy that runs down from trust to fiduciary law and regulation, see Alan Morrison and William Wilhelm (2015), ‘Trust, reputation, and law: The evolution of commitment in investment banking’,
Journal of Legal Analysis, 7, 363–420.
18. The relationship between trust and corporation has an extensive pedigree, not least Frederic Maitland (1904), ‘Trust and corporation’, reprinted in Frederic Maitland (1911),
Collected Papers, Cambridge: Cambridge University Press and Frederic Maitland (1905), ‘Moral personality and legal personality’,
Journal of the Society of Comparative Legislation, 6, 192–200.
19. ‘Ownership conferred by the law of trusts does not seem to belong either to persons or to things…Yet this is precisely what allows non-persons such as “unincorporate bodies” to be the beneficiaries of trusteeship. Ownership does not belong to persons because trusteeship allows ownership in “strict law” to rest with one set of persons (the trustees) and ownership in “equity” to rest with another group entirely (the beneficiaries); it does not belong to things because trusteeship allows the things owned to vary and to be variously invested without the rights of ownership having to alter (hence the trust “fund”). Instead, the law of trust rests on the idea of “good conscience”. If men can be trusted to act as owners in law for those who have an equitable claim on the thing owned, and if those with whom they deal can be trusted to see the matter in the same light, then it is possible to provide an enduring
legal identity for all manner of people and things that do not otherwise fit into the typology of
ius in personam and
ius in rem’ (David Runciman and Magnus Ryan (2003),
State, Trust and Corporation, Cambridge: Cambridge University Press, p. xx).
20. See Henry Hansmann and Steen Thomsen (2013), ‘Managerial distance and virtual ownership: The governance of industrial foundations’, ECGI Finance Working Paper No. 372.
21. See Colin Mayer (2013),
Firm Commitment: Why the Corporation Is Failing Us and How to Restore Trust in It, Oxford: Oxford University Press,
Chapter 7.
Chapter 8
1. In N. Halmi, P. Magnuson, and R. Modiano (eds),
Coleridge’s Poetry and Prose, New York: W. W. Norton, 2004, pp. 371–2.
2. This chapter is based on Colin Mayer (2017), ‘Finance, wealth, technological innovation and regulation’, in Kirk Hamilton and Cameron Hepburn (eds),
National Wealth: What Is Missing, Why It Matters, Oxford: Oxford University Press, pp. 379–98. Further discussion of some of the issues considered in this chapter can be found in John Armour, Dan Awrey, Paul Davies, Luca Enriques, Jeff Gordon, Colin Mayer, and Jennifer Payne (2016),
Principles of Financial Regulation, Oxford: Oxford University Press.
3. See, for example, the surveys by Ross Levine (1997), ‘Financial development and economic growth: View and agenda’,
Journal of Economic Literature, 35(2), 688–726, and Ross Levine (2005), ‘Finance and growth: Theory and evidence’, in Philippe Aghion and Steven Durlauf (eds),
Handbook of Economic Growth, Amsterdam: Elsevier, Chapter 12.
4. Raghuram G. Rajan and Luigi Zingales (1998), ‘Financial dependence and growth’,
American Economic Review, 88(3), 559–86.
5. See Colin Mayer (2015), ‘Economic development, financial systems, and the law’, in Eilis Ferran, Naomi Moloney, and Jennifer Payne (eds),
The Oxford Handbook of Financial Regulation, Oxford: Oxford University Press, pp. 41–67
.
6. Franklin Edwards and Frederic Mishkin (1995), ‘The decline of traditional banking: Implications for financial stability and regulatory policy’,
Federal Reserve Board of New York Economic Policy Review, July, 27–45.
7. Thomas Philippon (2015), ‘Has the US finance industry become less efficient? On the theory and measurement of financial intermediation’,
American Economic Review, 105, 1408–38.
8. For a description of how deregulation around the time of Big Bang in the United Kingdom was predicted in the middle of the 1980s to set in train both the subsequent explosion in financial activity and instability resulting in the 2008 financial crisis, see Colin Mayer (1986), ‘Financial innovation: Curse or blessing?’
Oxford Review of Economic Policy, 2, 1–19, and Colin Mayer (2015), ‘Big Bang: New beginning or beginning of the end?’
Oxford Review of Economic Policy, 31,186–98.
9. This section is based on Ignacio Mas and Colin Mayer (2011), ‘Savings as forward payments: Innovations on mobile money platforms’, SSRN Working Paper No.1825122; Michael Klein and Colin Mayer ‘Mobile money and financial inclusion: The regulatory lessons’, World Bank Working Paper WS 5664; and Mayer (2015), ‘Big Bang: New beginning or beginning of the end?’ For a more detailed discussion of these issues, see Jonathan Greenacre (2016), ‘The regulation of mobile money’, DPhil Thesis, University of Oxford.
10. For a more extensive discussion of the issues in this section see Luis Correia da Silva, Julian Franks, and Colin Mayer (2003),
Asset Management and Investor Protection: An International Analysis, Oxford: Oxford University Press.
Part 5
Chapter 9
1. This section draws on the introduction to Colin Mayer, Stefano Micossi, Marco Onada, Marco Pagano, and Andrea Polo (2018),
Finance and Investment: The European Case, Oxford: Oxford University Press.
2. Brunella Bruno, Alexandra D’Onofrio, and Immacolata Marino, ‘Financial structure and corporate investment in Europe: Evidence from the crisis years’, in Mayer et al. (2018),
Finance and Investment, pp. 15–56, and Francesca Barbiero et al., ‘Misallocation of investment in Europe: The role of debt overhang and credit market distress’, in Mayer et al. (2018),
Finance and Investment, pp. 57–64.
3. María Soledad Martinez Pería and Sergio Schmukler (2018), ‘Understanding the use of long-term finance in developing countries’, in Mayer et al. (2018),
Finance and Investment, pp. 65–84.
4. These imbalances have recently been substantial, as the corporate sector has run small financial deficits in several countries while accumulating considerable surpluses in Germany and the United Kingdom.
5. Fabrizio Coricelli and Marco Frigerio (2018), ‘Liquidity squeeze on SMEs during the Great Recession in Europe: The role of trade credit’, in Mayer et al. (2018),
Finance and Investment, pp. 85–94.
6. See N. Kroner (2009),
A Blueprint for Better Banking: Svenska Handelsbanken and a Proven Model for More Stable and Profitable Banking, Petersfield: Harriman House.
7. See Colin Mayer (2015), ‘The risk of risk committees’,
SUERF Studies, 1, 63–7.
8. A. Beltratti and R. Stulz (2012), ‘The credit crisis around the globe: Why did some banks perform better?’ Journal of Financial Economics, 105(1), 1–17; D. Erken, M. Hung, and P. Matos (2012), ‘Corporate governance in the 2007–2008 financial crisis: Evidence from financial institutions worldwide’, Journal of Corporate Finance, 18(2), 389–411; and B. Minton, J. Taillard, and
R. Williamson (2014), ‘Financial expertise of the board, risk taking, and performance: Evidence from bank holding companies’, Journal of Financial and Quantitative Analysis, 49(2), 351–80.
9. A. Ellul and V. Yerramilli (2013), ‘Stronger risk controls, lower risk: Evidence from U.S. bank holding companies’,
Journal of Finance, 68(5), 1757–803
.
10. A. Morrison and L. White (2013), ‘Reputational contagion and optimal regulatory forbearance’,
Journal of Financial Economics, 110(3), 642–58
.
11. Gilles Duruflé, Thomas Hellmann, and Karen Wilson (2018), ‘From start-up to scale-up: Examining public policies for the financing of high-growth ventures’, in Mayer et al. (2018),
Finance and Investment, pp. 179–220.
12. Alvin Warren (1974), ‘The corporate interest deduction: A policy evaluation’,
Yale Law Journal, 83, 1585–619.
13. Vasso Ioannidou, José Liberti, Thomas Mosk, and Jason Sturgess (2018), ‘Intended and unintended consequences of government credit guarantee programmes’, in Mayer et al. (2018),
Finance and Investment, pp. 317–26.
14. Claire Célérier, Thomas Kick, and Steven Ongena (2018), ‘Changes in the cost of bank equity and the supply of bank credit’, in Mayer et al. (2018),
Finance and Investment, pp. 169–78.
15. The United States has recently made a move in this direction through the US Tax Cuts and Jobs Act (2017), which limits the deductibility of net interest payments in US corporate income tax to 30% of earnings before interest, taxes, depreciation, and amortization for four years and 30% before interest and taxes thereafter.
16. Dionysia Katelouzou and Mathias Siems (2015), ‘Disappearing paradigms in shareholder protection: Leximetric evidence for 30 Countries, 1990–2013’,
Journal of Corporate Law Studies,
15, 127–34.
17. Ross Levine (2004), ‘Finance and growth: Theory and evidence’, National Bureau of Economic Research, Working Paper No. 10766; Asli Demirguc-Kunt and Vojislav Maksimovic (2002), ‘Funding growth in bank-based and market-based financial systems: Evidence from firm-level data’,
Journal of Financial Economics, 65, 337–41; James Brown, Gustav Martinsson, and Bruce Petersen (2013), ‘Law, stock markets, and innovation’,
Journal of Finance, 68, 1517–31.
18. Colin Mayer (1988), ‘New issues in corporate finance’,
European Economic Review, 32, 1167–83.
19. The theorem establishes the conditions under which the valuation of firms is invariant to their financial structure (for example, leverage and dividend policy).
Chapter 10
1. This chapter draws on Dieter Helm and Colin Mayer (2016), ‘Infrastructure: Why it is under provided and badly managed’,
Oxford Review of Economic Policy, 32(3), 343–59, and on work with Paul Collier on infrastructure investment in developing countries.
2. Atif Ansar, Bent Flyvbjerg, Alexannder Budzier, and Daniel Lunn (2016), ‘Does infrastructure investment lead to economic growth or economic fragility? Evidence from China’,
Oxford Review of Economic Policy, 32(3), 360–90.
Prospects
1. Samuel Huntington (1996),
The Clash of Civilizations and the Remaking of World Order, New York: Simon and Schuster.
2. Larry Siedentop (2014),
Inventing the Individual: The Origins of Western Liberalism, p. 243.