Banks and the Control of Corporations (1993)

C. A. E. Goodhart
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C. A. E. Goodhart: London School of Economics

Chapter 7 in The Central Bank and the Financial System, 1995, pp 142-155 from Palgrave Macmillan

Abstract: Abstract The chief executive, the head, of an enterprise, a firm, is in a position of power. Indeed, the hierarchy, the institutional form of a firm, is established in part to provide the head of a firm with the ability to manage the coordination of the various factors of production (Coase, 1937). That power can be misused. Even when the head of the firm is a primitive entrepreneur with 100 per cent ownership over the residual profits, the entrepreneur will enter into a series of explicit, or implicit, contracts with his labour force, outside suppliers, sales outlets and providers of external (debt) finance. Such a primitive entrepreneur will, indeed, have an incentive to maximise profits, since they all accrue to him, and to remain efficient and minimise costs. But he may also have an incentive to pass on the ownership within the family, irrespective of natural ability; to maintain control long after the most sensible retirement date; to defraud those with whom he has a contractual relationship, e.g. Maxwell’s pension fund, if he thinks he can get away with it; or to behave in other ways inimical to the best interests of those with whom he has some form of (contractual) relationship, and to whom he owes some duty of care.

Keywords: Commercial Bank; Bank Credit; Saving Bank; Inside Information; Communist Country (search for similar items in EconPapers)
Date: 1995
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DOI: 10.1057/9780230379152_7

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