The firm and its governance along the industry life cycle

Jackie Krafft and Jacques-Laurent Ravix ()

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Abstract: The paper explores this issue by reconciling two trends of literature that are generally disconnected - the industry life cycle (ILC) on the one hand and the governance of large and small firms on the other - to generate results on how the governance of the firm may look like over the industry life cycle. When the two bodies of literature are connected, the immediate result is that the governance of small, young and innovative firms in the early stages of the life cycle should be different from the governance of large, mature and routinized firms. Small young and innovative firms should benefit of a mode of governance based on cooperation and assistance to stimulate innovation, while large mature and routinized firms should be imposed a mode of governance based on control of the manager's action in the interests of shareholders. We argue that this immediate result can only be but preliminary, since age and size are not necessarily the key determinants of innovative behaviours of firms. In the ILC, small new firms engage product innovations, while large mature firms continue the process of innovation by investing in process capacities . In that perspective, imposing these firms a governance based on control may not be the optimal solution, since we know that this mode of governance favours short term choices that may be detrimental to the development of innovation. What is more important is thus to consider how the innovative behaviour of firms can be maintained in phases of growth and decline of the industry. In the paper, we advance the idea that new principles of governance should be proposed for innovative corporations (large or small) as a distinctive category.

Date: 2008
Note: View the original document on HAL open archive server: https://hal.science/hal-00211206
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Published in B. Laperche and D. Uzunidis. Powerful Finance and Innovation Trends in High-Risk Economy, Palgrave MacMillan, pp.131-148, 2008

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00211206

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