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US Corporate Governance: Lessons from the 1980's

Don Chew
Morgan Stanley Investment Management

Michael C. Jensen
Harvard Business School; Social Science Electronic Publishing (SSEP), Inc.



Michael C. Jensen, A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, Dec. 2000, and THE PORTABLE MBA IN FINANCE AND ACCOUNTING, John Leslie Livingstone, ed., Wiley, 1995

Abstract:     
The takeover boom of the 1980s challenged entrenched corporate management, who since the 1930s held the reins of corporate decision-making, often at the expense of shareholder interests. The effect was to transfer control over vast corporate resources to smaller, more focused and in many cases private corporations and individuals, who returned huge amounts of equity capital to shareholders. This accomplished the freeing of resources long trapped in mature industries and uneconomic conglomerates.

The popular media's stories about this phenomenon differ markedly from the stories told by careful academic research. We examine these stories, the political reactions to them, and the economic effects of the reactions. We also evaluate the effect of corporate restructuring on capital investment and R&D. We explain the phenomenon of excess capacity, and the forces that lead to exit. Finally, we analyze the breakdown of internal control systems and make recommendations to strengthen them.

Keywords: Takeovers, LBOs, leveraged buyouts, politics of finance, corporate restructuring, entrenched management, excess capacity, internal control systems, exit

JEL Classifications: G34

Accepted Paper Series

Date posted: October 09, 2000 ; Last revised: August 21, 2006

Suggested Citation

Chew, Don and Jensen, Michael C., US Corporate Governance: Lessons from the 1980's. Michael C. Jensen, A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, Dec. 2000, and THE PORTABLE MBA IN FINANCE AND ACCOUNTING, John Leslie Livingstone, ed., Wiley, 1995. Available at SSRN: http://ssrn.com/abstract=146150 or doi:10.2139/ssrn.146150


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Contact Information

Michael C. Jensen (Contact Author)
Harvard Business School ( email )
Soldiers Field
Negotiations, Organizations & Markets
Boston, MA 02163
United States
617-510-3363 (Phone)
305-675-3166 (Fax)
HOME PAGE: http://www.people.hbs.edu/mjensen/index.html
Social Science Electronic Publishing (SSEP), Inc. ( email )
7858 Sanderling Road
Sarasota, FL 34242
United States
941 685-3363 (Phone)
305 675-3166 (Fax)
HOME PAGE: http://ssrn.com/author=9
Donald Chew
Morgan Stanley Investment Management ( email )
United States
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