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The Modern Firm, Corporate Governance and Investment

The Modern Firm, Corporate Governance and Investment

New Perspectives on the Modern Corporation series

Edited by Per-Olof Bjuggren and Dennis C. Mueller

This book explores the revolutionary development of the theory of the firm over the past 35 years. Despite rapid progress in the field, new developments in the microeconomic and industrial organization literature have been relatively scant. This book attempts to redress the balance by providing a comprehensive overview of the theory of the firm before moving on to examine firms and the organization of their economic activities. The contributors also investigate the impact of ownership structure and board composition on firm performance and study how the institutional framework of an economy affects investment decisions.

Chapter 15: Top Management, Education and Networking

Mogens Dilling-Hansen, Erik Strøjer Madsen and Valdemar Smith

Subjects: business and management, corporate governance, economics and finance, corporate governance, industrial organisation, institutional economics


Mogens Dilling-Hansen, Erik Strøjer Madsen and Valdemar Smith* 1. INTRODUCTION The corporate governance literature has primarily focused on agent problems in management and, consequently, on the misallocation of resources as a result of bad decision making by managers as they do not have an incentive to behave in the best interests of all share- and debt-holders. Another important theme in the literature is misallocation of resources as a result of cash flow expropriation of major shareholders at the expense of minority shareholders; see, for example Tirole (2006). However, good decision making is not only a question of the right long-run target or incentives of the management; it also depends on their knowledge and the level of significant information about the competitive and technological environment of the firm. In that respect personal or professional networks may play an important role for the firm managers. The chapter uses a social network approach to analyse the importance in respect to firm performance of this external network between managers and board members of different firms by using a data base of the largest Danish companies. The corporate networking activity is divided into two types: networking between firms with a common owner structure and networking between independent firms. We use the Bonacich centrality approach to measure the networking activity; see Bonacich (1987). Moreover the primary goal of the paper is to analyse whether firm performance is affected by the strength of the professional networks with other firms held by top management, that is, CEOs...

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