Corporate Governance Best Paper Competition (2008)

The competition was organised by the ECGI, the Review of Finance and the Swedish Centre for Business and Policy Studies (SNS), and was sponsored by the European Corporate Governance Training Network, the Saïd Business School (SBS) and the Jan Wallander and Tom Hedelius Research Foundation.

Competition winners announced

The winners of the 2008 ECGI Best Paper Competition were announced at a ceremony in Stockholm on 9 December 2008. Two papers reached the Competition Final.

In the opinion of the Competition Jury, the 2008 prize should be shared between them both.

The first joint-winning paper was Bankers on the Boards of German Firms: What they do, what they are worth, and why they are (still) there by Ingolf Dittmann, Erasmus University Rotterdam, Ernst Maug, University of Mannheim and ECGI, and Christoph Schneider, University of Mannheim.

The picture shows (l to r) Ingolf Dittmann, Paolo Volpin and Christoph Schneider having received their prize certificates at the Stockholm final.

Summing up the jury's verdict of this joint-winning paper, Professor Josef Zechner said: "A company’s supervisory board is one of the central components of its governance structure. It has a delicate mix of responsibilities, including supervisory responsibilities, but also providing advice, information and possibly facilitating access to product- and capital markets. Given their expertise, bankers may be particularly well qualified to provide these functions. This paper provides unique evidence on the role of bankers on the boards of German non-financial companies. The authors do not find convincing evidence that bankers use board seats to monitor their equity interests or their interests as lenders, or to provide better access to capital markets. However, the paper shows that banks that are represented on a firm’s board promote their investment banking services and increase their lending to firms in the same industry. They also find evidence that the presence of bankers on the board causes a decline in the valuations of non-financial firms. Thus, board representation in non-financial firms seems to be in the interest of banks, but not in the interest of the non-bank shareholders in these firms."

The other joint winning-paper was Corporate Governance Externalities by Viral Acharya, London Business School and CEPR and Paolo Volpin, London Business School and CEPR.

The picture shows (l to r) three members of the Competition Jury who attended the Competition final in Stockholm, Professor Josef Zechner, Professor Franklin Allen and Professor Marco Becht. Photo: Allan Seppa, SNS

Summing up the jury's verdict of this joint-winning paper, Professor Josef Zechner said: "Since companies can choose and commit to their own governance arrangements, many scholars and practitioners question the role for regulatory standards. This paper demonstrates that even if firms can commit to governance standards, they may choose inefficiently low levels of governance because they do not internalise the full benefit of their own choice of governance. Thus the paper provides a rational for regulatory corporate governance standards. The source of the externality is the managerial labour market. Firms with weaker governance must offer managers more generous compensation packages to incentivise them. This in turn forces firms with good governance to also pay their management more than they would otherwise. This externality implies that, in the absence of regulation, firms would “underinvest” in governance. This externality view of corporate governance has interesting and important implications for regulatory standards, ownership structure of firms, and the market for corporate control."