This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the ‘separation and control’ issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.

that made this research possible, John Innes for his assistance, and the managers at the research site for their interest and co-operation. This paper represents a first draft and should not be quoted without the permission of the authors Abstract: The paper contributes to the burgeoning literature on corporate social performance (CSP) by exploring the internal motivators driving socially responsive decision making in an organisation that publicly purports to follow principles of corporate social responsibility. A case study in a United Kingdom company that consistently publishes audited external social reports was undertaken. Interviews with 19 managers were supplemented with an examination of detailed internal documentation and a comprehensive site tour. The findings are framed within the control systems literature and indicate the overriding influence of informal controls such as social and self controls in instilling socially responsive decision making among managers. This influence persists despite widely perceived tensions between the informal and formal control systems. The findings highlight the successful influence on socially responsive decision making of an intense organisational culture focused on aligning personal and organisational values.