AbstractIn order to test the theory of the firm and alternative theories of firm behaviour, primary data was collected from 310 managers of UK-based firms. This primary data was then combined with secondary data collated from the Financial Analysis Made Easy (FAME) database and the FTSEISS Corporate Governance Index. This data was then used to construct a number of binary probit models to test the validity of competing theories of the firm. Finally, the data was used to test an original hypothesis, that the level of corporate governance within a firm's management structure is the factor that determines if the managers of the firm will aim for a maximum level of profits.
The hypothesis offered here is that it is not, as previously suggested, the percentage of shares held by any one individual, the overall ownership structure, the size of the firm or indeed any firm, market or industry-specific variable that determines if a firm will aim to maximize profits. The relevant factor that determines if a firm will aim to maximize profits is the level of corporate governance within the firm's management structure. Regardless of any other variable, a firm with a high degree of corporate governance is more likely to aim to profit maximize than a firm with a low level of corporate governance.
|Date of Award||8 Jan 2007|
- Industrial organization
- Corporate governance