Corporate Governance and Earnings Inequality in the OECD Countries 1979-2000

The purpose of this article is to analyse the role of corporate governance in explaining cross-national differences and trends in earnings inequality in a sample of OECD countries between 1979 and 2000. It is argued that since corporate governance is fundamentally a question of in whose interest corporations are run, it will have important consequences for how the returns from production are distributed among the parties with a stake in the corporation. The article outlines an institutional approach to corporate governance and its cross-national variation as well as formulates a number of mechanisms whereby corporate governance may influence earnings inequality. The empirical assessment indicates that central aspects of these institutions, such as the role of the stock market in channelling capital to corporations, the extent of mergers and acquisitions, and protection of minority shareholders are all related to cross-national differences and trends in earnings inequality (as measured by the <it>p</it>90/<it>p</it>10 ratio). The conclusion is that corporate governance institutions and their respective managerial practices can make a significant contribution to our understanding of fundamental stratification processes.