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The effects of convergence: internationalization and the changing distribution of net value added in large German firms

The paper examines whether and how the increasing internationalization of firms impacts on the operation of a co-ordinated market economy. Following the tenets of agency theory, it assumes that an emerging market for corporate control changes the monitoring mechanisms that oversee management. Since Anglo-American forms of monitoring are usually associated with a higher return for investors compared with Continental European firms, a change in the distribution of the net value added of firms is expected. Using financial data on fifty-nine large German companies, the paper shows that the emerging convergence of German corporate governance practices to Anglo-American standards has had a weak, but significant, impact on the distribution of net value added. This is in contrast to the impact of the internationalization of firms on product markets, which does not have an effect. Since the market for corporate control is, however, still underdeveloped in Germany, the main effects remain to be seen.