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An evaluation is made of various ways in which corporate governance can be operationalized as part of a panel data econometric analysis. Corporate governance is not a concept that can be directly observed. Consequently, it is necessary to identify suitable proxy variables. Given the pros and cons of different measures of corporate governance, it is decided to undertake the empirical analysis with three plausible proxies – equity share, value traded, and international equity issuance – rather than to base conclusions on a single measure. Other potential measures of corporate governance – such as ownership concentration, corporate governance ratings, and measures of corporate governance regulation – are not utilized for various conceptual and practical reasons.

This chapter recounts the history of company law from the development of a joint venture business form that facilitated the networking of entrepreneurs and investors with their opposing interests, to the recent initiatives that help to foster the legal infrastructure needed to keep a modern economy in gear. It suggests that the company and securities law framework that gradually emerged in the wake of earlier stock market bubbles and governance failures is not sufficient to the task of curbing abuses within non-listed companies, and inadequate to fostering a competitive environment which assists business parties to write equilibrium contracts. It argues that policy-makers have drawn attention to other legal measures that can serve to minimize the specific agency, adverse selection, and moral hazard problems inherent in the governance of non-listed companies. This resulted in a ‘one-size-fits-all’ corporate form for non-listed companies.

This chapter demonstrates why the data indicates that the quality-of-corporate-law argument, although it explains transition economies nicely, is over-stated for several of the world's richest nations. In too many of them, even with good shareholder protection, stock can be sold, but ownership does not separate from control. Based on the data, several nations have good corporate law, but not much diffusion and separation. These nations also have a high potential for managerial agency costs: relatively weaker product market competition and relatively stronger political pressures on managers to disfavour shareholders.

This chapter considers the ways in which companies sought to safeguard the “financial” interests of their investors, which were coming to predominate as the joint-stock economy and the secondary market for shares grew. In particular, it examines the issue of shareholder liability, which exercised legislators, political commentators, company promoters, and individual shareholders. Although clumsy methods of shareholder protection could be resorted to by insurance companies, these are more suitable in some sectors than in others. Alternative protective mechanisms required transparent governance, which was often noticeably absent in banking. Greater oversight of company affairs is not only increasingly necessary but also increasingly difficult as the number and size of joint-stock companies grew. The chapter concludes that fundamental governance failures in unincorporated companies undermined the potential benefits of unlimited liability and thus strengthened the arguments for general limited liability.

This chapter discusses the corporate regulation of share issuance activities. Topics covered include the regulation of regulating share issuance activities; the special protection of shareholders’ interests; shareholder empowerment under the Companies Act 2006; statutory pre-emption rights under the Companies Act 2006; disapplication or exclusion of pre-emption rights; and other formalities in relation to share allotments.

The chapter surveys the literature on the applications of incomplete contracts to corporate governance. It notes that GH significantly changed the main focus in theoretical corporate governance to issues of control and shareholder and investor protection, and has thereby been a tremendous success. However, in the practice of corporate governance, the theory has had little impact. For this reason the chapter proposes to develop simple, tractable models that could be made operational and be used to take account of agency issues.