A Model of Corporate Governance As a System by

responsible for the contents and distribution of each Kiel Working Paper. Since the series involves manuscriptes in a preliminary form, interested readers are requested to direct criticisms and suggestions directly to the author and to clear any quotation with him. Abstract* This paper provides a rationale for the coexistence of different systems of corporate governance based on the multitude of agency problems typically to be governed within a given firm. Because there are complementarity and substitution relationships between governance instruments, specific combinations of instruments which reinforce each other in minimizing agency costs fit together better than alternative combinations. We derive comparative static results showing how various governance instruments can be combined to form a coherent system of corporate governance and how changes in exogenous parameters can lead to simultaneous, systemic changes in the instruments used