Book contents
- Frontmatter
- Contents
- Editors' preface
- Reintroducing The Economic Nature of the Firm
- Part I Within and among firms: the division of labor
- Part II The scope of the firm
- Part III The employment relation, the human factor, and internal organization
- Part IV Finance and the control of the firm
- 19 Mergers and the market for corporate control
- 20 Agency problems and the theory of the firm
- 21 Theory of the firm: managerial behavior, agency costs, and ownership structure
- 22 Organizational forms and investment decisions
- 23 The rise in managerial stock ownership
- 24 Executive compensation as an agency problem
- 25 An economist's perspective on the theory of the firm
- 26 Ownership and the nature of the firm
- References
- References
22 - Organizational forms and investment decisions
Published online by Cambridge University Press: 05 June 2014
- Frontmatter
- Contents
- Editors' preface
- Reintroducing The Economic Nature of the Firm
- Part I Within and among firms: the division of labor
- Part II The scope of the firm
- Part III The employment relation, the human factor, and internal organization
- Part IV Finance and the control of the firm
- 19 Mergers and the market for corporate control
- 20 Agency problems and the theory of the firm
- 21 Theory of the firm: managerial behavior, agency costs, and ownership structure
- 22 Organizational forms and investment decisions
- 23 The rise in managerial stock ownership
- 24 Executive compensation as an agency problem
- 25 An economist's perspective on the theory of the firm
- 26 Ownership and the nature of the firm
- References
- References
Summary
Introduction
Different organizational forms are distinguished by the characteristics of their residual claims on net cash flows, for example, restrictions on the extent to which residual claimant status is separable from decision roles, or restrictions on the alienability of the residual claims. Different restrictions on residual claims imply different rules for optimal investment decisions. This paper analyzes the relations between characteristics of residual claims and investment decision rules in open and closed corporations, partnerships, proprietorships, financial mutuals, and nonprofits. Our purpose is to determine whether the decisions of each of these organizations can be modeled “as if” they come from the maximization of an objective function – for example, the value maximization rule of the financial economics literature. We focus on investment decisions, but the rules are applicable to all decisions. We ignore the effects of taxes.
We first analyze the investment decision rule implied by the common stock residual claims of open corporations. We compare this rule to the decision rules implied by the more restricted residual claims of proprietorships, partnerships, and closed corporations, and we discuss aspects of the choice of organizational form. Finally, we analyze the investment decision rules implied by the even more specialized residual claims of financial mutuals and nonprofits.
The decision rule implied by the common stock of open corporations
The least restricted residual claims in common use are the common stocks of large corporations. These residual claims have property rights in net cash flows for an indefinite horizon.
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- Information
- The Economic Nature of the FirmA Reader, pp. 304 - 312Publisher: Cambridge University PressPrint publication year: 2009
References
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