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The Governance of the New Enterprise

  • RAGHURAM G. RAJAN
  • LUIGI ZINGALES

The changing nature of the corporation forces us to re-examine much of what we take for granted in corporate governance. What precisely is the entity that is being governed? How does the governance system obtain power over it, and what determines the division of power between various stakeholders? And is the objective of allocating power only to enhance the returns of outside investors? In this paper we argue that, given the changing nature of the firm, the focus of corporate governance must shift from alleviating the agency problems between managers and shareholders to studying mechanisms that give the firm the power to provide incentives to human capital. We also provide some examples of the kind of subjects that should now be the main focus of study in corporate governance.

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Paper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 487.

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Date of creation: Dec 1998
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Handle: RePEc:wop:chispw:487
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  17. Raghuram G. Rajan & Luigi Zingales, 2000. "The Firm as a Dedicated Hierarchy: A Theory of the Origin and Growth of Firms," NBER Working Papers 7546, National Bureau of Economic Research, Inc.
  18. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
  19. George Baker & Robert Gibbons & Kevin J. Murphy, 1997. "Implicit Contracts and the Theory of the Firm," NBER Working Papers 6177, National Bureau of Economic Research, Inc.
  20. Hermalin, Benjamin E & Weisbach, Michael S, 1998. "Endogenously Chosen Boards of Directors and Their Monitoring of the CEO," American Economic Review, American Economic Association, vol. 88(1), pages 96-118, March.
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