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Abstract

Managerial theories of the firm rest on the assumption of the separation of ownership from control. The ordinary shareholders legally own the firm but corporate management, who rarely own more than a very small proportion of the equity, controls the strategic decision making process, This separation introduces the possibility of conflict between the owners who seek to maximise company profits and managers who seek an alternative goal not consistent with profit maximisation. With the profit maximising principle undermined in this way it has been argued for a long time that the capitalist system is being replaced by a new form of economic organisation.

In this study it is argued that the management of a management controlled firm is not necessarily free to pursue its own discretionary behaviour because the decisions it takes may be subject to capital market forces that operate inside and outside the firm. The external capital market (the market for corporate control) is associated with takeover and the fear of takeover while the internal capital market is at work in those firms that have adopted the multidivisional form of organisation. The effective operation of either market will limit the amount of discretionary behaviour in management controlled firms thereby helping to restore efficiency to the capitalist system.

Data are collected for various samples of large firms in the U.K. and the U.S. Using discriminant analysis and regression analysis an empirical investigation is carried out into the operation of internal capital markets in U.K. firms and the external capital market in U.S. firms. In each case it is found that significant capital market discipline is exercised and it is concluded that neoclassical model contributes to our understanding of the way in which the capitalist system operates in these countries.

Publication Type:	Thesis (Doctoral)
Subjects:	H Social Sciences > H Social Sciences (General)
Departments:	School of Policy & Global Affairs > School of Policy & Global Affairs Doctoral Theses Doctoral Theses

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