This paper analyzes the linkages between governance quality and country stress events. It focuses on two types of events: fiscal and political stress events, for which two innovative stress indicators are introduced. The results suggest that weaker governance quality is associated with a higher incidence of both fiscal and political stress events. In particular, internal accountability, which measures the responsiveness of governments to improving the quality of the bureaucracy, public service provision, and respect for the institutional framework in place, is positively associated with fiscal stress events. However, external accountability, which captures government accountability before the public in general, through elections and the democratic process, seems to be more important for political stress events. These results hold when using balanced country samples where region, oil-exporter status, income level, and time are taken into account.
Korea has made a spectacular recovery from the Asian crisis. Executive Directors commended this developments, and stressed the need to implement monetary and fiscal polices. They commended the structural reforms, and emphasized the need to strengthen the asset management sector. They welcomed the approval of a free trade agreement with Chile, and looked forward to further trade-opening steps in the agricultural sector. They welcome the three-year roadmap for corporate reform, which eases regulations on 'chaebol' that improve governance.
This paper uses a stochastic continuous time model of the firm to study how different corporate governance structures affect the agency cost of debt. In the absence of asymmetric information, it shows that control of the firm by debtholders with a minority stake delays the exit decision and reduces the underinvestment problem. Such a governance structure may play an important role in diminishing conflicts between shareholders and debtholders.