The Modern Firm, Corporate Governance and Investment (New Perspectives on the Modern Corporation) [Hardcover]

Per-Olof Bjuggren (Editor), Dennis C. Mueller (Editor)

Book Description

ISBN-10: 1848442254 | ISBN-13: 978-1848442252 | Publication Date: July 2009

This book explores the revolutionary development of the theory of the firm over the past 35 years. Despite rapid progress in the field, new developments in the microeconomic and industrial organization literature have been relatively scant. This book attempts to redress the balance by providing a comprehensive overview of the theory of the firm before moving on to examine firms and the organization of their economic activities. The contributors also investigate the impact of ownership structure and board composition on firm performance and study how the institutional framework of an economy affects investment decisions.

Editorial Reviews

From the Author

Edited by Per-Olof Bjuggren, Professor of Economics, Jönköping International Business School, Jönköping University, Sweden and Dennis C. Mueller, Professor of Economics, University of Vienna, Austria

About the Author

Contributors include: P.-O. Bjuggren, R. Crespí, S. Deakin, M. Dilling-Hansen, W. Drobetz, J.E. Eklund, K. Foss, K. Gugler, S. Hirschvogl, C. Madelon, E.S. Madsen, D.C. Mueller, A. Singh, V. Smith, R.Ø. Strøm, S. Thomsen, D. Wiberg, O.E. Williamson

Product Details

• Hardcover: 414 pages
• Publisher: Edward Elgar Pub (July 2009)
• Language: English
• ISBN-10: 1848442254
• ISBN-13: 978-1848442252
• Product Dimensions: 9.3 x 6.1 x 1.1 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (1 customer review)
• Amazon Best Sellers Rank: #3,429,301 in Books (See Top 100 in Books)

Customer Reviews

Most Helpful Customer Reviews

4.0 out of 5 stars Stimulating reader on the theory of the firm includes practical investment advice, October 12, 2009

By 

James Mcritchie "Publisher" (Elk Grove, CA USA) - See all my reviews
(VINE VOICE)    (REAL NAME)   

This review is from: The Modern Firm, Corporate Governance and Investment (New Perspectives on the Modern Corporation) (Hardcover)

The book explores developments in the theory of the firm, as well as how ownership structure and institutional frameworks impact performance. Below, I look at a small sample of the contributions contained in this stimulating reader.

As a demonstration of the book's timeliness, the author of chapter 2, Oliver Williamson, was awarded the Nobel prize in economics while I was reading the book... always nice when that happens. In the essay included in this volume, Williamson argues that contract/governance is an instructive way of opening the black box of the firm, especially with regard to antitrust matters. He examines the application of a contractual approach to various forms, such as lateral integration, pricing, scaling, horizontal mergers, and conglomerates.

Dennis Mueller reviews the development of the firm, focusing on constraints (or their lack) on managerial discretion, finding constraints weak but developing. I a 1993 study with Elizabeth Reardon he found agency costs high. "Cumulative over the 19-year period, the 699 companies have collectively destroyed roughly $1 trillion by investing in projects with returns less than their costs of capital." General Motors alone contributed $150 billion of the total. It would be interesting to see an update. The merger wave, growing competitive markets and the increased proportion of institutional investors increased constrains but the later weren't as effective as some think, since institutional investors also got swept up in the euphoria of the bull market.

Kristen Foss examines managerial authority in the knowledge economy and finds changes are likely to be as dramatic as many suppose. "Although knowledge workers may have more bargaining power... they too will be subject to authority, as long as productive activities are characterized by uncertainty and measurement costs which make complete contracting prohibitively costly."

Johan Eklund examines ownership concentration and dual-class equity structures in Scandinavia. He finds that dual-class shares drive a wedge between cash-flow rights and control rights. "Firms with only on equity class are, on average, investing efficiently, whereas firms with dual-class equity structure are over-investing... Vote-differentiation creates massive entrenchment and destroys large values." "On average, 'entrenched' firms have returns on investments that are approximately 30 percent below the cost of capital." "Separation of cash-flow rights from control appears to distort the incentive of the controlling owner by significantly reducing the incentive effect."

Deakin and Singh look at the market for corporate control and conclude that takeovers are a very expensive way of changing management because of huge transaction costs. Lack of a market for corporate control in Japan, Germany and France avoids these costs but has not imposed hardship on their economies because of other mechanisms to discipline managers. Additionally, many acquiring firms do not impose discipline, since they are motivated by empire-building or asset-stripping.

Daniel Wiberg examines the relationship between institutional ownership and dividends. He finds that institutional ownership has a positive effect on dividend payout policies and disciplines free cash flow to management. Control instruments, such as vote-differentiated share, "induce investors to demand higher levels of dividends as compensation for increased agency costs."