O rganizational P rospects , I nfluence C osts , and O wnership C hanges

Margaret Meyer · Paul Milgrom

485 citations0/0 files storedJournal of Economics & Management Strategy

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Corporate Finance and Governance Merger and Competition Analysis Organizational Downsizing and Restructuring

Abstract

We augment efficiency‐based theories of ownership by including influence costs. Our principal conclusion is that the prospect of organizational decline and layoffs creates additional influence costs in multiunit organizations that would be absent if there was no prospect of layoffs and would be lessened or eliminated in focused organizations. This helps explain the tendency of firms to divest poorly performing units, as well as the pattern of sales of such units to firms already in businesses related to that of the divested unit.

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References

1986Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers 1977Determinants of corporate borrowing 1981Credit Rationing in Markets with Imperfect Information 1979Transaction-Cost Economics: The Governance of Contractual Relations 1986The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration 1996Agency costs of free cash flow, corporate finance, and takeovers 1985The economic institutions of capitalism firms, markets, relational contracting 1991Multitask Principal–Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design

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