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  4. Fall 1998
  5. Corporate Finance, the Theory of the Firm, and Organizations

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

Corporate Finance, the Theory of the Firm, and Organizations

  • Patrick Bolton
  • David S. Scharfstein
Journal of Economic Perspectives
vol. 12, no. 4, Fall 1998
(pp. 95–114)
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Abstract

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.

Citation

Bolton, Patrick, and David S. Scharfstein. 1998. "Corporate Finance, the Theory of the Firm, and Organizations." Journal of Economic Perspectives, 12 (4): 95–114. DOI: 10.1257/jep.12.4.95

JEL Classification

  • D20 Production and Organizations: General
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
  • G34 Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
  • C62 Existence and Stability Conditions of Equilibrium
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