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This thesis will assess the sustainability of managerial corporate governance systems in the context of the current economic globalisation wave. In order to do so corporate governance is studied as the function of decision-making undertaken by managers as corporate controllers, which is embedded in the national and supranational institutional context. The latter determine not only how much discretion managers have but also how they use it. Two main workable institutional equilibria are identified, reflecting two respective visions of the corporation that emerge from an overview of the most influential theories developed to study the nature of the firm. The first emphasises market transactions by promoting the externalisation of corporate functions and tends to align managerial decision-making to the interests of current shareholders, i. e. the maximisation of the firm's market value. The second contains a tendency towards the internalisation of corporate functions by the corporate organisation with enhanced managerial discretion being a crucial element for the sustainability of this sort of coordination. The crucial difference between these two institutional equilibria, i. e. the shareholder-oriented and the managerial, is that the former is less growth-oriented/dependent and emphasises the lack of commitment between stakeholders and "exit" from corporate relationships, whereas the latter is more growth-oriented/dependent and relies on stakeholder commitment and "voice". It is due to this difference that the managerial system is more susceptible to price competition which involves drastic cost-cuttings that affect stakeholder relationships and therefore more reliant on stable but relatively high macroeconomic growth rates and effective demand. A central hypothesis of this project is that this fundamental difference between the two systems is the decisive factor behind their ability to survive within the current context of economic globalisation. It is argued that globalisation, as a process where national institutional structures are gradually replaced by others determined by world market forces, not only promotes market based macro- and microeconomic coordination but has also (as a result) led to a global economic slowdown due to the inherent imperfections of the market mechanism. Simultaneously, the gradual removal of economic barriers has brought national corporate governance systems in competition with each other with increasing emphasis being placed on cost-reductions and short-term investments due to slower demand-growth. This has a negative impact on the workability of managerial systems and through a process of global isomorphism leads to the emergence of the shareholder-oriented system as the most likely winner not because it is better in terms of economic efficiency, but because it is more flexible. While these pressures are real, global corporate governance convergence is not guaranteed in the short and medium term due to different institutional dynamics that exist in each national system and which determine the scale and scope of adaptation. Empirical evidence from Germany confirms this since, although many basic institutions supporting German managerialism are being eroded, some path dependent ones remain stable and thus prevent the complete institutionalisation of shareholder supremacy. However, this creates systemic workability problems that can in the long term undermine even those institutional structures that are highly path dependent. The progress of further adaptation in the future depends on whether the costs of unworkability exceed adaptation costs.

During the last century we have experienced several financial crises with the most recent ones being those of 2007-2008, which have led to the collapse of many financial institutions. The failure of financial institutions has often built up to lead to financial crises that spread to the whole financial sector and the economy. One of the thesis's main arguments is that resilience should be 'part and parcel' of the business strategy through ex ante preparedness by adopting the necessary corporate governance (CG) standards and ensuring compliance with financial regulation. Thus, the thesis' purpose seems to be more squarely focused on the role of CG in mitigating problems of risk-taking and more specifically of leverage and liquidity. CG is seen as a mechanism in ensuring that risk-taking and instabilities created are curbed, but it is believed to have failed in its purpose after the events of the global financial crisis (GFC). The thesis evaluates various perspectives of corporate governance, the Efficient Market Hypothesis (EMH), and their relationship with managerial incentives. Managerial incentives have promoted increase of share price value and firm growth to maximise managerial compensation. Subsequently, this thesis studies how the changes in the financial environment shaped managerial incentives and encouraged changes in the banking model. Managerial incentives contributed to the shift towards investment banking and the use of new financial instruments. Share-based managerial incentives not only failed to prevent excessive risk-taking, but also exacerbated its effects since investment banking is inherently riskier than retail banking. Investment banking is interconnected with the shadow banking sector, and thus, more prone to spill-over effects and contagion risk. The regulatory framework pre-GFC is evaluated along with how its interaction with the theoretical framework that has undermined resilience. The use of the 'comply or explain' approach and the assessment of managerial decisions against market norms has undermined accountability and does not provide incentives to shareholders to hold managers accountable. Furthermore, shareholders do not complain of risk-taking as long as the firm is profitable. Thus, market discipline as used by Basel I and II has failed to discipline managers in reducing risk-taking. The foundations of the problem lie in the fact that there are information asymmetries that have not been bridged with market disclosure. The case studies on Northern Rock and the Royal Bank of Scotland are used as a demonstration of this relationship. Managerial strategy has led to excessive risk-taking, and with the absence of CG standards promoting good CG practices, aggressive business models led to the failure of RBS and Northern Rock. Finally, the changes made post-GFC are critically analysed as to whether they would be successful in ensuring bank resilience by providing the necessary CG standards to align managerial incentives with regulation. The thesis looks at the proposals made, and the new regulatory measures adopted post-Crisis. It examines whether they can align managerial incentives with regulation through CG. The thesis concludes that without amendments in CG standards and the acknowledgement of the relationship between CG and financial regulation, attempts to improve the resilience factors, risk-taking, liquidity, and leverage on their own will not be successful. This is because risk-taking will continue creating problems, as market discipline is not an effective disciplinary mechanism.

The severity of the consequences of financial instability calls for studies of financial markets from many different angles to develop a comprehensive picture of possible causes. These causes were, as will be argued in this thesis, of little concern to pre-crisis financial regulation. Instead, regulation focussed on the market process as a regulatory mechanism, a stance commonly adopted under the ideology of neoliberalism that permeated political discourse from the late 1970s. Neoliberalism derived its faith in the market process from the neoclassical conception of the market. Neoclassicists believed that the market did not need a regulatory framework to efficiently allocate resources to the benefit of society. Their belief was so strong that they ignored concerns over financial instability with dire consequences that materialised during the global financial crisis. This thesis will employ the Financial Instability Hypothesis (FIH) to discuss the inherent instabilities of financial systems that are in large part attributable to financial innovation. Policymakers used financial innovation and, particularly, securitisation in the Basel Accords on capital requirements to give capital markets the power to allocate capital to the benefit of society. The FIH will reveal that securitisation contributed to driving increases in leverage and housing prices in pre-crisis years to a point where the financial system collapsed. The issues to be discussed should feature in post-crisis regulatory developments. To determine the extent to which this is the case, this thesis will discuss Basel III in light of the discussion of the FIH and securitisation. It will become apparent that Basel III introduces many important reforms, especially in the context of liquidity and leverage requirements. Since the Basel Accords used securitisation as a tool in pre-crisis years, this thesis will discuss whether Basel III continues to be informed by the neoclassical conception of the market in its market discipline mechanism. It will ultimately conclude that Basel III does not address the regulatory failures that allowed securitisation to drive the housing price bubble. It continues to believe in the efficiency of the market process.