The recent splurge in corporate governance literature has veered the way the corporations work. Firm behavior was earlier modeled on the “black-box” argument of the neo-classicists who asserted that firms are nothing more than production counters. All activities of the firm were so geared to maximize profits. Finance literature has come a long way in explaining the various theories of firms and the behaviors associated with them. However, with the increasing understanding that mere economic and production based explanations do not describe the motivations for governance, researchers have focused on the behavioral side of firm performance to justify the economic rationale of the typical behaviors of the managers or the controllers.
Ronald Coase’s seminal work in 1937 on the nature of the firms, where he emphasizes the importance of authority and direction that characterize the boundaries of the firm, has revolutionized the way researchers perceived firm behavior. His work was further strengthened by Alchian and Demsetz (1972) who viewed the firm as a web of contractual relations. Monitoring team production could only be possible if the firm was characterized by contractual obligations. Subsequent development of agent-theoretic models following Jensen and Meckling’s (1976) seminal article “Theory of the firm: managerial behavior, agency costs and ownership structure,” has focused on the behavioral motivations of individuals who run corporations. However, the basic argument of corporate governance as it is seen today by both academic as well as other independent researchers, can be traced back to the pioneering work of Berle and Means (1932) who observed, as early as the 1930s, that the modern corporations have acquired colossal size. This growth thus led to the separation of control from ownership. Promoters, who till then ran the corporations, now needed specialized skills if they were to run... [continues]
Cite This Essay
(2008, 04). Understanding the Corporate Governance Quadrilateral. StudyMode.com. Retrieved 04, 2008, from http://www.studymode.com/essays/Understanding-Corporate-Governance-Quadrilateral-142316.html
"Understanding the Corporate Governance Quadrilateral" StudyMode.com. 04 2008. 04 2008 <http://www.studymode.com/essays/Understanding-Corporate-Governance-Quadrilateral-142316.html>.
"Understanding the Corporate Governance Quadrilateral." StudyMode.com. 04, 2008. Accessed 04, 2008. http://www.studymode.com/essays/Understanding-Corporate-Governance-Quadrilateral-142316.html.