Which variables provide superior explanations for corporate governance practices in developing countries? Economic efficiency driven variables or socio-political variables>
The basic answer would be both, dependent upon the the investor goals, the target market(s) and the legal environment. Each business organization needs to develop a business model that fits its available resources,the market it serves or wishes to serve, and the legal requirement imposed by the local authorities to insure they are operating a "legal" business,
Part of the issue of economic efficiency will be determined by the accounting and taxation systems employed and allowed by the local authority and as well as expected by the investor/owners and the fiduciary skills of management. Local customs and practices may run counter to textbook management practices and these willl have to be considered.when evaluating the organization governance.
the question I am raising is the relative importance of the two sets of variables. Standard theory tends to emphasize the economic efficiency aspects, while they could be more important in a developing country context.
Economic effciency is only possible if there is predictability in the business environment. The environment is made up of the socio-political, cultural, resource and economic domains. These must be all moving in the same general direction and each fairly stable in order to obtain efficiency. It is like driving a car, for the long distant run you want the traffic, the vehicle, the route, the spped and the downtime for refueling, as well as the driver and the load all to be at an optimum for the most efficient trip. This is why you have management, to momitor these factors and to make the adjustment to keep the institution efficient. Get to the level of efficiency is the problem facing a start up company and why, at least in the US 80% fail on the first try.
no doubt that the historic and sociological factors explain better the governance of developing countries than economic efficiency. In last, the economic variables are determined by historic and sociological changes
To start a business you must first know two key facts: How prepared are you to start? and How will prepared are you to succeeed/fail (i.e. your exist strategy). This determines how you will set up your governance and ownership stratigies over time.
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