Us Corporate Governance: Lessons from the 1980's

47 Pages Posted: 9 Oct 2000 Last revised: 24 Apr 2011

Michael C. Jensen

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

Don Chew

Morgan Stanley Investment Management

Date Written: April 30, 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 Classification: G34

Suggested Citation

Jensen, Michael C. and Chew, Don, Us Corporate Governance: Lessons from the 1980's (April 30, 1995). Michael C. Jensen, A THEORY OF THE FIRM: GOVERNANCE, RESIDUAL CLAIMS AND ORGANIZATIONAL FORMS, Harvard University Press, December 2000. Available at SSRN: https://ssrn.com/abstract=146150 or http://dx.doi.org/10.2139/ssrn.146150

Michael C. Jensen (Contact Author)

SSRN ( email )

7858 Sanderling Road
Sarasota, FL 34242
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305 675-3166 (Fax)

HOME PAGE: http://ssrn.com/author=9

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://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=6484

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Harvard University - Accounting & Control Unit ( email )

Soldiers Field
Boston, MA 02163
United States

Donald Chew

Morgan Stanley Investment Management ( email )

1585 Broadway
10036
United States

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