Corporate Finance, the Theory of the Firm, and Organizations

Patrick G M Bolton · David S. Scharfstein

203 citations0/0 files storedThe Journal of Economic Perspectives

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Corporate Finance and Governance Merger and Competition Analysis Economic Theory and Institutions

Abstract

Much of the modern research on firm boundaries, following Ronald Coase (1937), assumes that firms are run by owner-managers. This contrasts with the agency literature, following Adolph Berle and Gardiner Means (1932), that emphasizes the problems that arise when managers are not owners. In this paper, the authors argue that a richer theory of the firm should integrate Coase and Berle and Means. They illustrate this point by reexamining the oft-cited merger of General Motors and Fisher Body. The authors also show how linking these literatures can be used to understand one of the key roles of corporate headquarters, the allocation of capital.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1937The Nature of the Firm 1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1997A Survey of Corporate Governance 1987The Economic Institutions of Capitalism 1976Markets and Hierarchies: Analysis and Antitrust Implications.1996Production, Information Costs and Economic Organization 1986The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration

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