Ownership Concentration and the Theory of the Firm : A Simple-Game-Theoretic Approach to Applied US Corporations in the 1930's

Capital market constraints on the firm are traditionally described as working through two mutually reinforcing mechanisms. Firct, a direct limitation on management discretion operates through accountability to shareholders. Larger shareholders are assumed continuously to monitor company performance particuarly in its effect on profitability and equity values. In the event of a departure from profit maximisation they will organise to use their voting power to force changes in company policy or, in the limit, to replace the existing top-level management with one more acceptable to them. Behind this institutional threat lies the second constraint, the possibility od an increase in share concentration leading to a takeover should the share prices fall low enough or the threat prove ineffective (for example if concentration is too low).