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Corporate Finance, the Theory of the Firm, and Organizations

  • Patrick Bolton
  • David S. Scharfstein

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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.12.4.95
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 12 (1998)
Issue (Month): 4 (Fall)
Pages: 95-114

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Handle: RePEc:aea:jecper:v:12:y:1998:i:4:p:95-114
Note: DOI: 10.1257/jep.12.4.95
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  12. Gertner, Robert H & Scharfstein, David S & Stein, Jeremy C, 1994. "Internal versus External Capital Markets," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1211-30, November.
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  16. Kaplan, Steven N & Weisbach, Michael S, 1992. " The Success of Acquisitions: Evidence from Divestitures," Journal of Finance, American Finance Association, vol. 47(1), pages 107-38, March.
  17. David S. Scharfstein, 1998. "The Dark Side of Internal Capital Markets II: Evidence from Diversified Conglomerates," NBER Working Papers 6352, National Bureau of Economic Research, Inc.
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