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Shareholder Interests, Human Capital Investment and Corporate Governance

  • Roberts, John

    (Stanford U)

  • Van den Steen, Eric

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
Contact details of provider: Postal: Stanford University, Stanford, CA 94305-5015
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  1. Hart, Oliver D. & Moore, John, 1990. "Property Rights and the Nature of the Firm," Scholarly Articles 3448675, Harvard University Department of Economics.
  2. Grossman, Sanford J & Hart, Oliver, 1985. "The Cost and Benefits of Ownership: A Theory of Vertical and Lateral Integration," CEPR Discussion Papers 70, C.E.P.R. Discussion Papers.
  3. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," NBER Working Papers 6421, National Bureau of Economic Research, Inc.
  4. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  5. 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.
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