Research Handbook on Insider Trading
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Research Handbook on Insider Trading

Edited by Stephen M. Bainbridge

In most capital markets, insider trading is the most common violation of securities law. It is also the most well known, inspiring countless movie plots and attracting scholars with a broad range of backgrounds and interests, from pure legal doctrine to empirical analysis to complex economic theory. This volume brings together original cutting-edge research in these and other areas written by leading experts in insider trading law and economics.
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Chapter 4: Entrepreneurship, compensation, and the corporation

Henry G. Manne


Much of the economics literature on the compensation of various personnel involved with large, publicly held companies has failed to come to grips explicitly with three important economic realities. The first is that there is no single model of corporate organization that will turn up valid answers for all occasions. The corporate entity is a many-splendored thing, ranging from the elemental, one-person shop to the giant behemoth with millions of shareholders no one of whom has anything like a controlling influence on corporate affairs. In between these two lie every conceivable combination and permutation of ownership form and distribution, voting rights, contractual provisions (charters and by-laws included) relating to managerial authority and compensation, dividend policies, organizational culture, norms, and applicable laws. The second reality is that there are numerous economic functions involved in every corporation, although these intellectually distinguishable functions are rarely isolated for cogent analysis. Shortage of a rich vocabulary may be part of the problem, but chances are that analytical lethargy plays a larger role. For example, we frequently use the word “entrepreneurship” to describe the organizational—and sometimes purely managerial or administrative—task of founding a business, as though that were the sole role of the entrepreneur.

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