Macroeconomic Implications of

Corporate Governance

1st presentationMairhofer Bianca, 0757259Supervisor: Dr. Johann Scharler

Table of Contents

Literature Review Theory CG Indices: Shareholder rights protection Minority shareholder protection Creditor rights protection

Sample and Variables

Literature Review

Theory Companies with bad CG respond more to

aggregate shocks Reasons:

Manager hirer more people as necessary during booms because of utility out of “power”

Manager firer more people than necessary during recessions because of fear of losing the job

Main reference: Philippon, T. (2005, September, JEDC) who developed a RBC – model which could explain up to a third of aggregate volatility

CG indices Shareholder rights protection (=SRP)

Appointment rights index Decision rights index Trusteeship index Transparency index

Minority shareholder rights protection (=MSRP) Minority shareholders appointment rights index Minority shareholders decision rights index Minority shareholders trusteeship rights index Minority shareholders affiliation rights index

Literature Review

Literature Review

CG indices Creditor rights protection (=CRP)

Debtor – vs. Creditor oriented code Automatic stay on the assets Secured creditors are ranked first Creditor approval of bankruptcy Appointment of official to manage

reorganization procedure

The higher each index, the higher is each protection.

Variables Dependent variables:

Macroeconomic variable: standard deviation of GDP Other possible variables: standard deviation of unemployment rate or industrial

production Independent variables:

3 Corporate Governance indices: SRP (max=32) MSRP (max=27) CRP (max=5)

Sample and Variables

Sample Data from the homepages of EC, ECB, IMF, OECD

and the data of the paper “A Corporate Governance Index: Convergence and Diversity of National Corporate Governance Regulations” (Martynova, M., & Renneboog, L. (2010, February), JEL)

15 OECD countries 4 intervals each with a period of 5 years (1990 –

2009) Calculation GDP growth rate: Calculation standard deviation: Equation for estimation:

Sample and Variables

ititititiGDPit CRPMSRPSRP *** 321

100*)ln()ln( 1990_11990_2 QuQuit GDPGDP

2

1

)(*1

i

T

titit T

Thank you for your attention!