Evaggelos Drimpetas

Corporate governance regulatory convergence: a remedy for the wrong problem

There are two identifiable problems: agency problem and the problem of minority shareholder protection. The mix and weight of the two problems classifies a country to one system or the other. The fundamental difference between systems is ownership concentration which is the source of all the other differences. The main concern, in Continental Europe countries, is the expropriation of minority shareholders by the dominant major shareholders, whereas in Anglo-Saxon firms the main concern is the expropriation of shareholders by the dominant managers. Two distinct trends are observed in the last two decades. The first is a convergence in the legal - regulative environment and the second in ownership concentration. Regardless the trend for ownership dispersion and the convergence securities laws and regulations, the main characteristic of ownership structure remain unchanged, the systems remain distinctively separate. The paper argues that legal - regulative convergence is not adequate to achieve real corporate governance system convergence. As long as the fundamental differences of the corporate governance systems differ, legal and regulating isomorphism may be the cause of problems and not a solution.

The Missing Link to an Effective Corporate Governance System

Purpose - The purpose of this paper is to propose a new approach to designing enterprise systems (ES). The goal is to create an information system that can be more efficient and able to contribute to a more stable and efficient corporate governance system. Design/methodology/approach - The new design approach is based on a retrospective analysis of the evolution of enterprise systems and the emerging business requirements. Findings - The new ES (Holistic Information System) does not diminish the problem of Corporate Governance (CG). The design and implementation of ES, according to modern CG principles and guidelines, can help all parties make rational decisions (through the power of logic and not through the logic of power), facilitate the market for corporate control, the flow of information and hence the efficiency of the CG system. Practical implications - The new framework can help information systems designers to understand and create a more holistic system. Also, it can help stakeholders understand the role that the ES can play in the corporate governance system and exert influence on managers to adopt an information system that covers their needs as well. Originality/value - It is the first attempt to merge the theory of corporate governance with the ES theory in order to formulate a new design approach. Paper type - Conceptual paper

Corporate Governance and the Information Systems Excellence Factor

Corporate Governance (CG) and Enterprise Systems (ESs) have attracted a great deal of attention from academics and practitioners. Financial scandals (Enron, WorldCom, etc.) and information system breakdowns are common nowadays. This paper argues that these failures are closely correlated. It shows the correlation and makes some suggestions about how the information systems should be designed and implemented and how corporate governance can benefit from the new design approach. Regulation, voluntary codes and good practices as a motive for adopting new systems (organisational and informational) play a crucial role in selecting the course of action and strategy. The synergies between CG and ESs can lead to a more stable corporate environment and improved organisational performance.

Defining the factors of Fitch rankings in the European banking sector

The crises of 2002 and 2008 have raised the issue of banking sector’s ranking system efficiency. The CRAs are crucial for the modern financial market. The impact that the ratings have is indisputable. The paper is seeking to find the factors that affect the ratings and to create a prediction mechanism. In order to do that, all ranking evaluations have been matched with a numerical value (i.e. AAA has value 24, A- has value 18 and B- has value 9). A good grade is considered to be above A- (value 18) and a bad grade below that number. This paper will address the issue using econometric models. Seven groups of indicators are examined: performance, size, ownership, corporate governance, capital adequacy or capital structure, sovereign-country ranking, and loan growth. Three econometric methods (Probit, Logit, OLS) have been used to create a system that predicts rating grade. The independent variable is binary (good grade=1/bad grade=0). Inactive banks have been excluded from the sample. This paper provides a model for predicting the factors that affect the grade of the bank rating. Many of the factors, which other research have pointed out, are found to be statistically important in our models, too. This paper contributes to the literature by establishing a unique framework for the European banks and identifying the factors that affect the rating grade, by giving answer to the question of an isomorphic banking sector in Europe. It shows that there are significant differences among the various geographical regions (variables cgsys, ns, PIGS) of Europe.

Mergers – Acquisitions as a Strategic Option: A Probit Model

Purpose – M&A differences are based on three levels: preconditions, payment methods and motives-drivers. The paper’s purpose is to determine the motives, preconditions and methods of M&As in Greece and to compare them with the ones that are recorded in the studies for the Anglo-Saxon countries. Design/methodology/approach – The data used are collected from annual reports. A model was constructed using Probit regression methodology. The paper focused on the decision to adopt the M&A strategy (of the M&A strategy adoption). Findings – The paper argues that the M&A activity in Greece wasn’t the result of a convergence trend (a shift in the fundamental elements of the Greek business environment), but rather an extraordinary event. The preconditions and motives that are reported for the Anglo-Saxon countries are either none existing or weak in comparison in the case of Greece. In Anglo-Saxon countries M&As changed the business and organizational model, whereas in Greece the fundamental characteristics remained the same. Research limitations/implications – Data have been collected from the annual reports of the 60 biggest in capitalization firms in the Greek Stock Exchange. Practical implications – The fact that there are different businesses and organizational models across Europe is a factor that must be taken into account in designing and implementing policies and regulations that promote the idea of a common market with complete freedom of movement and the same rules and regulations. Originality/value – This is the first paper that uses Probit methodology to study M&As in Greece and complements a growing body of literature studying the M&A phenomenon in Europe.

The Impact of Sovereign Debt Ratings and Financial Performance on Bank Ratings

The chapter explores the relation among sovereign debt ratings, individual bank ratings and bank financial status. Credit Rating Agencies (CRA) are crucial to the function of financial markets. Two main blocks of models have been designed to investigate the above relations. The first block uses a constructed binary variable for Fitch’s ranking of European banks. The second block tries to identify the relation between financial performance and ratings. The data used for the empirical analysis, covering the period from 2004 to 2011, focus on the commercial banks of the 27 European Union countries. The statistical results show the close relation among sovereign debt, bank ratings and performance. The statistical importance of this relation is an indicator that external—exogenous factors (CRA) can play a significant role in formulating the economic environment, especially in times of crisis.

Causes of Inactivity in the European Banking Sector

The crises of 2002 and 2008 have raised the issue of banking sector’s ability to absorb the effects of the crises. The inactivity of banks may be the result of a number of events, such as merger & acquisition (M&A), liquidation, default-bankruptcy, etc. Bankruptcy has been found to be a phenomenon that doesn’t happen often. On the contrary, M&As and liquidation are the main inactivity phenomena.The paper will address the issue of inactivity and will try to detect its causes using econometric models. Six groups of indicators are examined: performance, size, ownership, corporate governance, capital adequacy or capital structure and loan growth. Three econometric methods (Probit, Logit, OLS) have been used to create a system that predicts inactivity.The results of the econometric models show that from the six groups of indicators, four have been found to be statistically important (performance, size, ownership, corporate governance). Two have a negative impact (ownership, corporate governance) on the probability of inactivity and two positive (performance, size). This finding is consistent with the theory. The paper’s value and innovation is that it has given a systemic approach to find indicators of inactivity and it has excluded two groups of indicators as non-statistically important (capital adequacy or capital structure and growth).