Economic Consequences of Corporate Conflicts

Economic Consequences of Corporate Conflicts

Mikhail Y. Kuznetsov (Moscow State University, Russia), Maria I. Nikishova (Financial University Under the Government of the Russian Federation, Russia), Valeria Solovyova (Center of Corporate Development “Topcompetence”, Russia) and Konstantin I. Lukoyanov (St. Petersburg State University, Russia)
Copyright: © 2019 |Pages: 28
DOI: 10.4018/978-1-5225-8906-8.ch004

Abstract

A single economic space is created by the conditions of globalization, where corporations become the main economic actors. In this circumstance, the issues of corporate governance, especially the prevention and resolution of corporate conflicts, require the closest attention. In this chapter, the authors will try to answer the question of the possible economic consequences of major corporate conflicts and assess the degree of potential impact on the parameters of company activity: in the first part of the research, key financial indicators, credit ratings capitalization; in the second part of the research, the global economy, investment and economic growth, the dynamics of financial markets, investment climate, capital flows, etc.
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Introduction

Shaping the nature of Russian business, corporate conflicts have had and continue to have a powerful impact on the overall environment of the country - including its investment climate.

In international practice, corporate conflicts are an inevitable part of corporate relations. Depending on the specifics such as the participants, corporate conflicts can lead to both an increase in shareholder value and an increase in the efficiency of companies, as well as have a destructive effect on the economy.

The aim of the study is to determine approaches to assessing the impact of corporate conflicts on the investment climate, economic growth and economic development of countries in which large corporate conflicts occurred. This study can be the basis for further study of the economic consequences of corporate conflicts.

The objectives of the study include finding answers to the following questions:

  • What are the features of corporate conflicts in the US, Europe, Russia?

  • What is the magnitude of possible consequences of large corporate conflicts upon the investment climate, economic growth, and economic development of the country in which the conflict took place?

  • What are the conditions for minimizing the potential economic damage caused by large corporate conflicts in the country?

The research method is a desk study of the largest corporate conflicts of the last fifteen years, using, as an example conflicts in the USA, Europe, Russia – included are Volkswagen, Parmalat, Enron, AFK Sistema - Rosneft, NLMK, Norilsk Nickel - Rusal, TNK-BP.

The target audience of the study are teachers, academics, and graduate students, as well as students in the fields of management and corporate governance. The study will also be informative for top management of companies, heads of various organizations and government bodies.

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Features Of Corporate Conflicts In The Us, Europe, Russia

To assess the potential economic consequences of corporate conflicts that go beyond the activities of companies themselves, the authors use the well-known concept of “social costs” (Graaff, 1987), according to which “social costs are the costs that society as a whole incurs from events, actions or political change. They include negative external consequences, but do not take into account the costs that are transfers...” (Deardorff, n.d.). Thus, public costs are private costs plus external consequences.

In this section, the authors try to find an answer to the following questions:

  • What are the key features of corporate conflicts in international practice?

  • How do corporate conflicts affect the value of the companies involved in the conflict, the investment climate, and the economy?

In international practice, corporate conflicts are a natural part of corporate relations. There are usually two causes of corporate conflicts: differences of opinion and differences in the interests of the parties involved in the conflict.

A large amount of research has been devoted to the study of corporate conflicts. L. A. Bebchuk & M. S. Weisbach (2009), J. Connington (2017), S. Roy (2017), C. Leuz, K. V. Lins, & F. E. Warnock (2009) can be mentioned among international authors dealing with this problem. Among Russian researchers, S. Stepanov & S. Gabdrakhmanov (2011), I. V. Berezinets, Y. B. Ilyina, & D. N. Fakhritdinov (2014), V. Gusakov (2017), O. Kershis & A. Gosh (2017), and others can be identified.

Key Terms in this Chapter

Board of Directors: A collective management body that provides strategic management of the company.

Corporate Conflict: Open confrontation, in which two or more parties from among the shareholders, managers, members of the board of directors are involved.

Shareholder: A person who owns shares in a company and therefore gets part of the company's profits and the right to vote on how the company is controlled.

Corporate Governance: Structures and processes for the implementation of strategic management and control over the activities of companies.

Corporate Governance Code: Code of voluntary standards and internal regulations that establish and regulate the procedure for corporate relations.

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