Universal banking, control rights, and corporate finance in Germany.

Corporate governance mechanisms assure investors in corporations that they will receive adequate returns on their investments (Shleifer and Vishny, 1997, p. 737). If these mechanisms did not exist or did not function properly, outside investors would not lend to firms or buy equity in them. Businesses would be forced to rely entirely on their own internally generated cash flows and accumulated financial resources to finance ongoing operations as well as profitable investment opportunities. Overall economic performance would suffer because many good business opportunities would be…