* Corporate governance theory deals with the optimal organization of management and control in companies with many stakeholders. Corporate governance systems are shaped by national laws, capital market requirements, and individual corporate decisions.
* For historical reasons, there are large differences between international corporate governance systems. But due to the globalization of product, labor, and capital markets, a competition of international governance systems has evolved. In the long run, this competition will lead to a convergence of all systems, to a continuation of different systems, or to the dominance of one system.
* An empirical study based on data from annual reports indicates that the US and the Japanese governance system each have different, but distinctive strengths. The German governance system is less well prepared for the systems' competition and might disappear from the market in the long run.
* Corporate governance systems complete globally. The empirical evidence reported in this paper suggests that the US and the Japanese governance system will survive in the long run as distinct and equally efficient systems whereas the German system will disappear (and probably converge to the US system).
Corporate governance theory deals with the optimal organization of mangement and control in companies with different stakeholders, e.g. minority shareholders, institutional shareholders, employees, debt providing banks etc. (Hart 1995, Shleifer/Vishny 1997, Tirole 2001). An individual firm's governance structure is shaped by the national corporate and trading laws of its home country, by capital market requirements (in case of a stock exchange listing), and by own organizational decisions within the framework of existing laws. The core tasks of a corporate governance system are to ensure corporate efficiency and to find a "fair" distribution of the resulting surplus among the stakeholders (O'Sullivan 2000, Witt 2001). Whereas the organizational governance problem and the interests of stakeholders are more or less the same around the world, the actual corporate governance systems in place are not (Charkham 1994, La Porta et al. 1998). Due to historical developments, path dependencies, and different financing patterns of firms around the world, very different corporate governance systems have evolved (Roe 1996, Bebchuck/Roe 1999, Schmidt/Hackethal/Tyrell 2002).
Scholars and practitioners have developed a number of different frameworks and models for comparative corporate governance analysis. One of the most prominent and influential studies in Europe (Charkham 1994) directly compares the corporate governance systems of five countries, traces their origins, and shows that they all fit national history and political preferences. An equally influential study (Roe 1996) analyses different international corporate governance systems from an American perspective and concludes that governance structures do not matter much for corporate performance. The core hypothesis is that different governance systems yield different advantages and disadvantages, making it difficult for one system to be superior to another. A more recent comparative study from a German perspective (Schmidt/Spindler 2002) juxtaposes two stylized corporate governance models, the "outsider control system" of the US and the German "insider control system". The authors find that both systems display typical advantages and disadvantages and can both be regarded as locally optimal systems. The only important advantage for the US system is the greater degree of flexibility in adapting to changes in the competitive environment. Witt (2003, pp. 175-224) develops two game theoretical models for the competition of corporate governance systems. In the first model, countries compete to attract firms that are free to choose their location by offering corporate governance systems and prices (tax packages) for it. …