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Shareholder Interests, Human Capital Investment and Corporate Governance

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Author Info
Roberts, John (Stanford U)
Van den Steen, Eric

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Abstract

Corporations simultaneously claim that human capital is increasingly important to their success and that they seek to maximize shareholder value. This paper studies the relationship between these two developments. We show that the pursuit of shareholder interests may require ceding a role in corporate governance to employees in order to motivate their investing in firm-specific human capital. Doing so becomes more attractive as these investments increase in importance. This result also bears on the debate about reforming European and Japanese governance systems in the direction of the American system, reducing employees' influence. In this context, we present a model on the optimal choice of governance systems, along ideas suggested by Holmstrom.

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Paper provided by Stanford University, Graduate School of Business in its series Research Papers with number 1631.

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Date of creation: Apr 2000
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Handle: RePEc:ecl:stabus:1631

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  1. Milgrom, Paul & Roberts, John, 1994. "Complementarities and systems: Understanding japanese economic organization," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 9(1), pages 3-42.
  2. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  3. Ken Binmore & Ariel Rubinstein & Asher Wolinsky, 1986. "The Nash Bargaining Solution in Economic Modelling," RAND Journal of Economics, The RAND Corporation, vol. 17(2), pages 176-188, Summer. [Downloadable!] (restricted)
  4. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," Harvard Institute of Economic Research Working Papers 1816, Harvard - Institute of Economic Research.
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  5. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June. [Downloadable!] (restricted)
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  6. Grossman, Sanford J & Hart, Oliver D, 1986. "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 691-719, August. [Downloadable!] (restricted)
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  1. Olivier Sautel & Cécile Cézanne-Sintès, 2007. "Firme intensive en capital humain et coordination : vers une redéfinition du rapport entre intégration et dé-intégration," Post-Print hal-00331454_v1, HAL. [Downloadable!]
  2. Frank Milne & David Kelsey, 2006. "Imperfect Competition and Corporate Governance," Working Papers 1079, Queen's University, Department of Economics. [Downloadable!]
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