Abstract

http://ssrn.com/abstract=1874272
 


 



Law, Economics, and Beyond: A Case for Re-Theorizing the Business Corporation


P. M. Vasudev


University of Ottawa - Common Law Section

November 1, 2010

McGill Law Journal, Vol. 55, No. 4, 2010

Abstract:     
This essay presents a critical analysis of the economic theory of corporations, and its idioms such as "nexus of contracts," "agency costs," and "shareholder value". It calls for the development of a richer and more inclusive theory of business corporations that draws on the experience of the last three decades and better addresses the needs of the post-Enron, post-AIG world.

Several deficiencies are identified in the economic theory of corporations. First, the contractarian interpretation of corporations overlooks the role of law and public policy in the creation and governance of corporations. Second, using share prices as the yard stick of corporate performance and encouraging practices such as buyback of shares have serious implications for the long-term competitiveness and sustainability of corporations. Third, there is inadequate attention to the characteristic and normative distinctions between debt and equity. In the framework of economic theory, the problems of managerial power, board efficacy and executive pay also do not receive the sophisticated treatment they require.

In general, economic theory overlooks the impact of microeconomic prescriptions on macroeconomic welfare. This is especially important for the globalized markets of today with the ubiquitous phenomena of outsourcing of manufacturing and business processes. Referring to the experience, the article calls for revisiting the theory underlying business corporations to better address the needs of the present and the foreseeable future.

Number of Pages in PDF File: 54

Keywords: corporate governance, economic theory, agency costs, nexus of contracts, shareholder value, executive pay, globalization, dividends, share buybacks, Enron

JEL Classification: B21, B22, G30, G32, G34, G35, G38, G39, K22, L20

Accepted Paper Series





Download This Paper

Date posted: June 29, 2011 ; Last revised: June 28, 2013

Suggested Citation

Vasudev, P. M., Law, Economics, and Beyond: A Case for Re-Theorizing the Business Corporation (November 1, 2010). McGill Law Journal, Vol. 55, No. 4, 2010. Available at SSRN: http://ssrn.com/abstract=1874272

Contact Information

P. M. Vasudev (Contact Author)
University of Ottawa - Common Law Section ( email )
57 Louis Pasteur Street
Ottawa, K1N 6N5
Canada
613-562-5800 (Phone)
613-562-5124 (Fax)
HOME PAGE: http://www.commonlaw.uottawa.ca/en/p.m.-vasudev.html

Feedback to SSRN


Paper statistics
Abstract Views: 317
Downloads: 35

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.297 seconds