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Eclipse of the Public Corporation

HARVARD BUSINESS REVIEW (Sept.-Oct. 1989), revised 1997.

31 Pages Posted: 3 May 1999  

Michael C. Jensen

SSRN; Harvard Business School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Harvard University - Accounting & Control Unit

Abstract

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)

Keywords: Governance, Agency, Control, Organizational Innovation, Going Private, Control Function of Debt, LBO Associations

JEL Classification: G32, G34

Suggested Citation

Jensen, Michael C., Eclipse of the Public Corporation. HARVARD BUSINESS REVIEW (Sept.-Oct. 1989), revised 1997.. Available at SSRN: https://ssrn.com/abstract=146149 or http://dx.doi.org/10.2139/ssrn.146149

Michael C. Jensen (Contact Author)

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Harvard Business School ( email )

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European Corporate Governance Institute (ECGI) ( email )

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Harvard University - Accounting & Control Unit ( email )

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