The Separation of Capital Ownership and Control

Powerful Essays
The argument of whether the separation of capital ownership and control is an efficient form of organization has constantly been a controversial issue. The criticism whether the controllers’ act is in the best interest of the owners’ wills never end as long as hired managers operate management. As the number of public companies has been increasing over the course of this century, meanwhile the American style of contact based corporation has become more common as well, the so-called “agency problem” has been concerned and examined more frequently from wider aspects. The common theory agreed by literates is that they consider that hired managers do not have to act exactly as they promised to security holders to maximize wealth of the firm; instead, they will try to deviate by adding self-interest of their own (Macey 2008). Fama, however, argued that managers should behave rationally and responsibly to maximize the value of the firm under the consideration of potential outside wage rate (1980). Both arguments will be justified and examined further in the article; resources/evidence from some recent explorations will also be evaluated. The issue remains unsolved due to complicity of theories, complexity of measurements and other contradictory factors; however, shareholders may still find some options to tackle.

Many scholars are anxious about the problem raised from hiring managers. For example, Jonathan Macey explored the unsurprised disappointment act of top managers in his Corporate Governance as Promise (2008) that instead of pursing investors’ interest, corporate governance is about to deviate propensity of the firm from investors’ expectation by controlling capitals. His arguments based on the assumption of the legitimacy of...

... middle of paper ...

...e consistent interest theory. The options to solve this inherent problem are quite limited and every option suffers from different factors.

Works Cited

Kroll M. (1993), Whose Interests Do Hired Top Managers Pursue? An Examination of Select Mutual and Stock Life Insurers, Journal of Business Research 26,133-148, Elsevier Science Publishing Co., Inc., New York.

Smith, A., (1937), The Wealth of Nations, 1776, Modern Library, Cannon Ed., New York.

Jensen, M. C., and Meckling, W. H., (1976) Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics 3: 305-360.

Fama E. F., (1980), Agency Problems and the Theory of the Firm, The Journal of Political Economy, The University of Chicago Press.

Macey J. R. (2008), CORPORATE GOVERNANCE AS PROMISE, Corporate Governance, Princeton University Press.
Get Access