DP1806 Corporate Governance

This paper summarizes my own personal view of what corporate governance is about. I argue that it makes sense to discuss corporate governance only in an incomplete contract world. In this world, the notion of corporate governance is intrinsically related to the definition of the firm. In this respect, the shortcomings of the existing definitions of the firm are reviewed and the possible applications of the idea that the firm is a ?nexus of specific investments? introduced by Rajan and Zingales (1997a and 1997b). The paper concludes by discussing the limitations of the incomplete contracts approach to corporate governance.