What Makes Autonomous Management Do Well? Corporate Governance Without External Controls
24 Pages Posted: 16 Feb 2003
There are 2 versions of this paper
What Makes Autonomous Management Do Well? Corporate Governance Without External Controls
What Makes Autonomous Management Do Well?: Corporate Governance Without External Controls
Date Written: February 2003
Abstract
We propose a model of the widely held firm where management may behave on behalf of shareholders even without external controls. The model shows that there exists a corporate governance mechanism inside the firm where workers are employed on a long-term basis. When effort of young workers depends on managerial decision-making, they give implicit pressure on the managers, which may substitute control by shareholders. If this mechanism works fairly well, it is optimal for shareholders to leave the firm autonomous. We also discuss how the firm's internal factors (such as retention rate and business information sharing) and external environments (such as product market competition and labor market rigidity) affect the efficacy of this internal governance mechanism.
Keywords: corporate governance, management autonomy, shareholder intervention, long-term employment
JEL Classification: G34, J41
Suggested Citation: Suggested Citation
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