The Modern Firm, Corporate Governance and Investment
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The Modern Firm, Corporate Governance and Investment

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.
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Chapter 3: The Corporation: An Economic Enigma

Dennis C. Mueller


Dennis C. Mueller The Anglo-Saxon version of corporate organization – widely dispersed ownership, and professional managers with small ownership stakes – has been somewhat of an enigma throughout its 200 or so year history. Some economists have thought it to be an inefficient organizational structure; others have proclaimed its superiority over all other ways to organize business activity. The performance of US corporations during the 1970s and 1980s seemed to confirm the judgments of the corporate form’s critics. One market after another was lost to companies from Japan or Europe. Articles and books appeared proclaiming the ‘German model’ or the ‘Japanese model’ superior to the Anglo-Saxon model.1 One student of American capitalism even predicted ‘the eclipse of the public corporation’ (Jensen, 1989). The impressive performance of the United States’ economy during the 1990s, alongside the stumbling performances of the Japanese and the German and some other European economies, has led some to now claim that it is the Anglo-Saxon model which is superior and toward which all others must converge.2 In this chapter I review some of the arguments and evidence regarding the efficiency of the corporate form. I shall argue that one reason for the different views of economists about corporations is that they tend to see what they want to see. Although most of the evidence cited seems to support the position of the critics of the corporate form, I shall close the chapter with the suggestion that developments over the last decade or two have altered the environments in...

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