Eclipse of the Public Corporation
Michael C. Jensen
Social Science Electronic Publishing (SSEP), Inc.; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)
HARVARD BUSINESS REVIEW (Sept.-Oct. 1989), revised 1997.
The publicly held corporation has outlived its usefulness in many sectors of the economy. New organizations are emerging. Takeovers, leveraged buyouts, and other going-private transactions are manifestations of this change. A central source of waste in the public corporation is the conflict between owners and managers over free cash flow. This conflict helps explain the prominent role of debt in the new organizations. The new organizations' resolution of the conflict explains how they can motivate people and manage resources more effectively than public corporations. (HBR McKinsey Award Winner)
Number of Pages in PDF File: 31
Keywords: Governance, Agency, Control, Organizational Innovation, Going Private, Control Function of Debt, LBO Associations
JEL Classification: G32, G34
Date posted: May 3, 1999
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