The US stock market and the governance of innovative enterprise

Abstract

During the 1980s and 1990s, the argument that “maximizing shareholder value” results in superior economic performance came to dominate the corporate governance debates. This shareholder-value perspective represents an attempt to construct a theory of corporate governance that is consistent with the neoclassical theory of the market economy. I outline the rationale for the shareholder-value perspective, and show that, rooted in agency theory, it lacks a theory of innovative enterprise. To go beyond agency theory and its shareholder-value perspective, I present a framework for analyzing the functions of the stock market in the business corporation and the influence of these functions on the innovation process. I then apply this framework to the experience of the US ICT industries over the past decade to consider empirically the influences of the five functions of the stock market—summarized as “creation,” “control,” “combination,” “compensation,” and “cash”—on innovative enterprise in US high-technology industries. In the conclusion, I draw out the implications of the changing functions of the stock market for the governance of innovative enterprise.

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