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.

We examine the separation of ownership and control for 2,980 corporations in nine East Asian countries. In all countries, voting rights frequently exceed cash-#ow rights via pyramid structures and cross-holdings. The separation of ownership and control is most pronounced among family-controlled "rms and small "rms. More than two-thirds of "rms are controlled by a single shareholder. Managers of closely held "rms tend to be relatives of the controlling shareholder's family. Older "rms are generally family-controlled, dispelling the notion that ownership becomes dispersed over time. Finally, signi"cant corporate wealth in East Asia is concentrated among a few families. � 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G32; L22

This paper is a product of the Operations Policy Group, Operations Policy Department. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Cherian Samuel, room MC10-362, telephone 202-473-0802, fax 202-477-6987, Internet address csamuel@worldbank.org. April 1996. (43 pages) The Policy Research Working Paper Series disseminates the findings of work in prowess to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be used and cited accordingly. The findings, interpretations, and conclusions are the authors' own and should not be attributed to the World Bank, its Executive Board of Directors, or any of its member countries

the branch of logic concerned with the application of principles of reasoning to scientific and philosophical inquiry. (Webster's Seventh New Collegiate Dictionary) Researchers and policy analysts are reexamining the role cooperatively organized business plays in the U.S. economy. The growth in size and importance of cooperatives in certain sectors of the economy, such as agricultural input supply and the processing-marketing of fibers, dairy products, grains and fresh produce, causes concern that these organizations may be creating some of the problems they originally were intended to mitigate. Of particular concern is the potential for the exploitation of market power in those industries or areas where cooperatives dominate. In addition, there is an emergent need to understand the economic nature of cooperative enterprise to determine its appropriate role in a changing market environment where government policy and budgetary support of agricultural markets for the purposes of price and income stability is becoming

Much of the literature on the role and function of the modern firm is based on the assumption of the prevalence of widely dispersed ownership. The dispersion of ownership has resulted in the notion that “the owner of industrial wealth is left a mere symbol of ownership ” (Berle and Means, 1932, p.68), as the control over companies is

This paper-- a product of the Operations Policy Group, Operations Policy Department-- is part of a larger effort in the department to. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433

We provide the first study of mutual fund management change that attempts to classify the reason for change. Our analysis of 307 manager changes separates promotions from demotions. In contrast to previous research that simply looks at changes, we find a richer set of variables that explain the probability of fund manager replacement. Indeed, our results suggest that a pooled regression that does not attempt to discern between promotion and demotion is misspecified.

Occasional dissents notwithstanding, it is widely conceded that law and economics is a success story. There being general agreement that parsimony is a virtue in science, any effort to expand or otherwise reshape the law and economics enterprise needs to justify itself. My primary justification for the inclusion of organization is that reliance by law and economics on the orthodox theory of the firm-as-production function, which is a technological construction, has led to a truncated understanding of economic organization and has resulted in public policy error. Although there are reasons to believe that the worst such errors are behind us, the future will present new puzzles for which public policy error is a lurking concern. The second benefit that I associate with law, economics, and organization is educational: a more veridical theory of economic organization in which private ordering is featured will benefit the teaching of contract law and the training of what Ronald Gilson (1984) has referred to as “transaction cost engineers ” in the law schools. There are four propositions: economic organization is very complex; orthodox microeconomic theory, especially the theory of the firm-as-production function, fails to engage and/or misconstrues some of the main purposes served by economic organization; organization theory undergirds the theory of the firm-as-governance structure; and a wide range of contractual and organizational phenomena are better understood from the governance structure perspective. The critical concession, for law and economics scholars, is to come to terms with the fact that the orthodox theory of the firm was never designed with reference to and is often poorly suited to interpret the puzzles of firm and market organization. I begin with a sketch of some of the earlier strains on antitrust law and economics. I then identify a series of key contributions from the organization theory literature which, when interpreted from a transaction cost economizing perspective, provide support for the theory of the firm-as-governance structure. The value added of this construction is then developed by

The paper focuses on the professionalization of family-firms. The study analyses the role of family and management systems in family business, particularly with regard to the relationship between professionalization and economic performance of family firms. The study analyses the features, the drivers and the effect of professionalization of family firms. All the hypotheses have been tested on a sample of 151 small and medium-sized family businesses, extracted from 166 questionnaires returned from the 1,122 mailed to an initial sample of 7,964 manufacturing SMEs, using a structural modelling approach. The main results point out that the involvement of family members in the company management contributes to performance. Instead, the impact of agency cost control mechanisms, such as strategic planning or boards of directors, on the performance of family firms is very complex to analyse. Key Words Professionalization, agency cost control mechanism, family involvement, economic performance JEL code

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