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What Makes Autonomous Management Do Well?: Corporate Governance without External Controls

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  • Shin'ichi Hirota
  • Kohei Kawamura

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.

Suggested Citation

  • Shin'ichi Hirota & Kohei Kawamura, 2002. "What Makes Autonomous Management Do Well?: Corporate Governance without External Controls," Yale School of Management Working Papers ysm270, Yale School of Management, revised 01 Sep 2002.
    • Handle: RePEc:ysm:wpaper:ysm270
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    References listed on IDEAS

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