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Oxford Review of Economic Policy 2005 21(2):164-177; doi:10.1093/oxrep/gri010
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Oxford Review of Economic Policy vol. 21 no. 2 2005 © The Author (2005). Published by Oxford University Press. All rights reserved.

Corporate Governance in Emerging Economies

Franklin Allen
University of Pennsylvania1

Most of the literature on corporate governance emphasizes that firms should be run in the interests of shareholders. This is an appropriate objective function when markets are perfect and complete. In many emerging economies this is not the case: markets are imperfect and incomplete. The first theme of the paper is that alternative firm objective functions, such as pursuing the interests of all stakeholders, may help overcome market failures. The second theme is that it is not necessarily optimal to use the law to ensure good corporate governance. Other mechanisms such as competition, trust, and reputation may be preferable.

1 Prepared for the ECGI/Oxford Review of Economic Policy conference on Corporate Governance (Saïd Business School, Oxford, 28–29 January 2005). I am grateful to my discussant, George Dallas, and an anonymous referee for helpful comments and suggestions.


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