The United States Corporate Governance: The Market as Monitor

Observer 203, December 1996/January 1997
All modern organisations, firms among them, face a conflict between their goals and the differing objectives of the ‘agents’ who play a role in their operation. Since the resolution of these conflicts entails transaction costs (because of the impossibility of writing comprehensive contracts among the people involved), residual rights of decision-making and control over firms’ non-human assets must be allocated. The procedure by which this is done – through the institutional and legal framework in which firms operate – forms the fabric of corporate governance. It is increasingly recognised to be an important determinant of economic performance.
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