Corporate Governance and Earnings Inequality in the OECD-countries 1979-2000
The purpose of this paper is to analyze the role of corporate governance in explaining cross-national differences and trends in earnings inequality in a sample of OECD countries between 1979 and 2000. It is argued that since corporate governance is fundamentally a question of in whose interest corporations are run, as a result it will have important consequences for how the returns from production are distributed among the parties with a stake in the corporation, such as shareholders and labor interests. The paper is divided into four parts. The first part summarizes the main cross-national differences and trends in wage inequality in the OECD countries, as well as giving a brief account of the main theoretical approaches to explaining these differences and trends. The second part outlines an institutional approach to corporate governance and its cross-national variation, whereas the third section of the paper formulates the causal mechanisms whereby corporate governance may influence earnings inequality. Basically, it is argued that emphasis upon shareholder value – which involves frequent corporate restructuring, including hostile takeovers and downsizing, active and liquid capital markets and dispersed ownership – will have important consequences for earnings inequality. The last section of the paper assesses the empirical relevance of institutions relating to corporate governance in explaining cross-national differences and trends in earnings inequality (as measured by the p90/p10 ratio). It is shown that these institutions, or more specifically the role of the stock market in channeling capital to corporations, the extent of mergers and acquisitions, ownership dispersion, and the importance of bank-based financing and the protection of minority shareholders, are all significantly related to cross-national differences and trends in earnings inequality. The conclusion is that corporate governance institutions and their respective managerial practices can make a significant contribution to our understanding of fundamental stratification processes.
Sjöberg, O.