Managerial control inside the firm

Shinichi Hirota, Kohei Kawamura

Research output: Contribution to journalArticlepeer-review

Abstract

This paper proposes an implicit control mechanism of managers inside the firm. We argue that the need to motivate workers may make it beneficial for a self-interested, short-sighted manager to pursue the long-term viability of a firm. When the firm is in a stable environment, this implicit control mechanism may not contradict shareholder value maximization. However, when the firm needs restructuring, this mechanism diminishes firm value. We discuss when external governance is desirable, and when it is not. Our model also offers economic explanations for some related issues in managerial behavior, such as restructuring aversion, survival motive, and excessive risk aversion.
Original languageEnglish
Pages (from-to)324-335
Number of pages12
JournalJournal of the Japanese and International Economies
Volume21
Issue number3
DOIs
Publication statusPublished - Sep 2007

Keywords

  • Corporate governance
  • Worker incentives
  • Autonomous management
  • Restructuring
  • Corporate survival
  • Managerial risk aversion

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